Federal Express in fast takeoff with 'overnight letters'
Boston — Federal Express Corporation is an expert in fast takeoffs. In the three years since the package delivery company first sold stock to the public, profits have climbed 336 percent, to $59.3 million. Revenues rocketed 268 percent in the same period.
And the company's new products have been fast starters. The ''overnight letter'' service Federal Express launched in June became profitable the first month it was offered. Letters of up to two ounces now account for 17,000 to 20, 000 of the 110,000 packages Federal moves each night on its fleet of 52 jets.
Profits are piling up so fast at Federal that new competitors are likely to make sorties into the small (under 70 pound) package overnight-delivery business Federal now dominates.
The first sign of this increased competition came last month when United Airlines began gearing up its ''United AirExpress service. UAL now promises door-to-door, overnight package service in the 5,000 communities the airline serves.
''We want to participate in the explosive market which Federal Express has determined,'' says Frank Conway, United's manager of system freight sales.
''This is the most significant commitment of any (passenger) airline'' to the small-package busines, notes Paul Schlesinger, an analyst with Donaldson, Lufkin & Jenrette.
Still, even though United dwarfs Federal in financial resources, analysts do not expect UAL to have much effect on Federal's dominance of the small-package service. ''Federal Express is well entrenched'' in the market, says Jack Kavanagh, a Merrill Lynch analyst.
Federal Express's strength in this particular market is the result of a strategy of operating its own fleet of planes. Each evening the jets fly into a central hub in Memphis where packages are sorted for shipment in the wee hours of the morning.
Longer-established competitors - like Emery Air Freight - had relied on scheduled airlines to move their packages and so had less control over schedules. By the time other freight handlers adopted Federal's methods, the upstart company had seized a major portion of the market.
As a result, ''the only one that can have an impact'' on Federal's position is United Parcel Service, says Mr. Schlesinger at Donaldson Lufkin.
The Greenwich, Conn.-based UPS is a giant in package delivery and last year handled some 1.5 billion items. Its fleet of brown trucks produced revenues of
Until recently UPS had concentrated on delivering packages by truck, not air. But last year the firm began offering an air-based ''Blue Label'' service, with delivery guaranteed in 48 hours.
When a Blue Label advertising campaign ends in November, UPS is expected to decide whether it wants to stick with two-day air service or offer overnight delivery like Federal.
Outside observers think UPS will move to overnight delivery. They note that in September UPS leased nine used Boeing 727 jets from Braniff Airways. ''Those are not the ideal kind of planes for second-day service,'' Mr. Schlesinger says. ''The 727s make more sense for overnight delivery.''
While its plans are the subject of speculation on Wall Street, UPS is living up to its reputation for being tight-lipped. ''We look at transportation from every aspect,'' says Donald Buckley, the UPS communications director. ''But as to what our plans are, we never speculate.''
Federal Express executives profess to be unconcerned about a UPS thrust into their market. ''What they do is provide reliable and inexpensive and not very fast service,'' notes Thomas R. Oliver, Federal's senior vice-president for marketing and customer service. ''To make the mental and physical changes to go overnight is a tremendous (undertaking).''
Of course, UPS is not the only company that can stumble when it tries to develop a new product. Federal itself has had to rework its ''Hotel Pak'' service, which it launched late in 1980. The plan was for businessmen to be able to send packages in selected sizes from some hotels. By January it plans to have a revised hotel service plan in full operation.
Despite occasional stumbles, most analysts expect Federal Express to continue to prosper as the overnight package market matures. Schlesinger notes that ''when they have made big bets, they have won them.''