Federal Express 2000 Annual Report Download - page 13

FedEx
Corp.
11
Revenues
Revenues for FedEx Ground increased 8% in 2000,
while average daily packages increased 4% and
yields increased 4% . The increase in yields is due
to a 2.3% price increase, which was effective in
February 1999 and a slight increase in the mix of
higher yielding packages.
In 1999, FedEx Ground’s revenue increased due
to im proving yields and steady volum e growth.
Yields were positively impacted by rate increases
of 2.3% and 3.7% in February 1999 and 1998,
respectively. During 1999, FedEx Ground recog-
nized a year-to-date, one-tim e benefit of approxi-
m ately $6 m illion to align its estim ation
m ethodology for in-transit revenue with that of
our other operating subsidiaries. Year-to-date
package yield was increased by $.02 because of
this one-tim e adjustment.
Results for 1998 included incremental volum e
associated with the UPS strike. Excluding this
increm ental volum e, average daily packages
increased 6% for 1999.
O perating Incom e
Operating incom e for 2000 reflects higher operat-
ing costs, due primarily to increases in capacity
and technology, as well as the effects of FedEx
Hom e Delivery and the rebranding and reorganiza-
tion initiatives. Depreciation expense increased
20% in 2000 as new term inal facilities were
opened late in 1999 and throughout the first half of
2000. In March 2000, FedEx Ground launched its
new service, FedEx Home Delivery. This new serv-
ice is dedicated to m eeting the needs of business-
to-consum er shippers. Currently, this service is
available for approximately 50% of the U.S. popu-
lation. An operating loss of $19 million was
incurred by the hom e delivery service in 2000.
Operating incom e increased in 1999 due to increased
volum e and yield-m anagement actions. Results
for 1998 contained approxim ately $6 million of
increm ental operating incom e associated with the
UPS strike.
FedEx Ground
The following table com pares revenues and operating income (in m illions) and selected package statistics
(in thousands, except dollar am ounts) for the years ended May 31:
Percent Change
2000 1999 1998 2000/1999 1999/1998
Revenues $2,033 $1,878 $1,711 +8 +10
Operating incom e $ 226 $ 231 $ 171 –2 +35
Average daily packages 1,442 1,385 1,326 +4 +4
Revenue per package (yield) $ 5.55 $ 5.36 $ 5.04 +4 +6
FedEx Express will continue to use the flexibility
of its global network infrastructure by reconfiguring
its system and flights to meet market dem ands.
While long-term profitability is expected to improve,
increm ental costs incurred during periods of
strategic expansion and varying econom ic condi-
tions can affect short-term operating results.
Actual results may vary depending on the success-
ful implementation of our reorganization and
rebranding initiative, the impact of competitive
pricing changes, custom er responses to yield
m anagem ent initiatives, the timing and extent of
network refinem ent, actions by our competitors,
including capacity fluctuations, jet fuel prices,
regulatory conditions for aviation rights and the rate
of domestic and international econom ic growth.
In the past three years, the FedEx Express world-
wide aircraft fleet has increased, resulting in a
corresponding rise in maintenance expense. While
we expect a predictable pattern of aircraft m ainte-
nance and repairs expense, unanticipated m ainte-
nance events will occasionally disrupt this
pattern, resulting in periodic fluctuations in main-
tenance and repairs expense.
FedEx Express’s operating income from the sales of
hushkits, which peaked in 1998 and declined in
1999 and 2000, is expected to become insignificant
in 2001.