FedEx (FDX)

Federal Express was conceived by Frederick W. Smith in a 1965 term paper while a student at Yale University. His basic idea was that shippers needed an air freight system that could acccommodate time-sensitive shipments such as medicines, computer parts and electronics. In 1971, Smith bought controlling interest in Arkansas Aviation Sales, where he discovered the tremendous obstacles to getting packages and other airfreight delivered within one to two days. After more research, he launched Federal Express in 1973 with 14 small planes from Memphis International Airport, which he chose for its location near the center of the lower 48 states.

The company changed its corporate name to FedEx in 1994 and FedEx Express was adopted in 2000 to reflect its position in an expanding FedEx Corporation portfolio of transportation and trade companies.

FedEx Corporation, which goes by FDX on the New York Stock Exchange, is now the holding company for 10 individual divisions in four operating segments, which include FedEx Express, FedEx Ground, FedEx Freight and FedEx Kinko's.

FedEx Express, which operates 672 aircraft, remains FedEx’s largest operation. It generated $21.5 billion, or two-thirds, of parent FedEx Corp.’s revenue in 2006. Buoyed by the growth of e-commerce and world trade and unburdened by the skyrocketing security costs plaguing passenger airlines, FedEx continued to prosper in the wake of the Sept. 11 terrorist attacks.

As the U.S. package delivery business has matured, however, FedEx Corp. has had to turn to acquisitions and international expansion to sustain its double-digit revenue growth rates. It is also increasingly focusing on squeezing costs of out of its globe-straddling network. As a result, FedEx Express’ profits grew 25 percent last year, or 2.5 times faster than revenues, despite a mere 1 percent growth of its average daily package volume to 3.3 million packages.

Likewise, the entire FedEx Corp. reported net income in 2006 rose 25 percent to $1.8 billion on a 10 percent rise in revenues to $32.3 billion.  FLTops.com members can view a five-year history of major airline revenue and profits by visiting the airline financials page.

FedEx continues to enjoy strong pricing power. It was able to offset rising fuel prices last year with fuel surcharges and raised basic rates across most of its segments.

FedEx Express pilots, represented by the Air Line Pilots Association, enjoy one of the richest contracts in the commercial airline industry.  ALPA had represented FedEx's pilots in the mid-1990s, but the independent FedEx Pilots Association ousted it in a 1996 election. ALPA merged with the FPA in 2002.

After nearly two and a half years of negotiations, ALPA secured one of the industry’s richest pilot contracts for FedEx Express’ pilots in 2006. The 4,700 pilots overwhelmingly ratified the four-year agreement in October 2006. In stark contrast to hundreds of millions of dollars in annual wage and benefit cuts imposed by passenger airliners since 2001, the FedEx Express contract provided some of the industry’s highest wages, improved retirement and health care benefits, stronger job security provisions and enhanced work rules, according to ALPA. FedEx Corp. estimated the pilot contract would cost it 25 cents a share in 2007, or roughly $75 million. A FedEx Express captain with 12 years experience flying an A310 earns more than $200,000 a year, according to FLTops' "Pilot Pay -Major Airline Pilots" calculator.

While passenger airlines have been canceling leases and returning aircraft, FedEx has been expanding its fleet. It operated 671 aircraft in 2006 compared to 647 in 2002. In November, FedEx Express canceled an order for 10 A380s after Airbus delayed their delivery a second time and instead ordered 15 Boeing 777 freighters and options for 15 more in a deal valued at about $3.5 billion at list prices.    

Flying packages rather than people comes with its own set of challenges. Foremost is adjusting your circadian rhythms to a schedule laden with overnight flights. This back-side-of-the-clock flying is not for everyone.