FedEx understands there is no such thing as a "glide path" to sustained profitability and market leadership in our industry. Instead, we're continually applying new information technologies, strategic management initiatives and aggressive marketing strategies to better connect with customers, reduce operating costs and improve profitability.
Deregulation of the airline industry in 1977 gave the still-struggling company an important boost. At the time of FedEx's startup, the U.S. airline industry had been subject to tight federal regulation. In fact, the company had only managed to get into business through an exemption that allowed any company to enter the common carrier business if its payloads were under 7,500 pounds. These self-same regulations, written in 1938 to protect passenger airlines, would ultimately hold back FedEx's growth. The company was forced to fly up to eight small Falcon jets side-by-side to bigger markets when use of one larger jet would have saved money. Smith led a legislative fight to end regulation, and a bill doing so was passed in 1977. Deregulation meant the company could fly anywhere in the United States anytime, and use larger aircraft like 727s, and later, DC-10s. FedEx bought a fleet of used 727-1OOCs, using its Falcons to expand into small- and medium-sized markets.
Explosive growth continued as a tidal wave of businesses switched to overnight service. Miniaturization of consumer electronics and scientific instruments translated into increasing numbers of small, valuable packages needing express shipment. In addition, many U.S. companies were shifting to just-in-time inventories as a way to keep prices down, lessen quality-control problems, and cut costs. Consequently, these companies often needed emergency shipment of goods and parts, and FedEx was there to provide that much-needed service. It soon began billing itself as a "500-mile-an-hour warehouse."
In mid-1981 FedEx announced a new product that would bring it into direct competition with the U.S. Postal Service (USPS) for the first time: the overnight letter. The document-size cardboard envelope, which could contain up to two ounces, would be delivered overnight for $9.50 at that time.
By 1981 Federal Express had the largest sales of any U.S. air freight company, unseating competitors like Emery, Airborne Freight, and Purolator Courier, which had gone into business about two decades earlier. Unlike FedEx, competitors shipped packages of all sizes using regularly scheduled airlines, and didn't stress speed; FedEx's narrowly focused, speed-oriented service won over many of its competitor's customers. To compete, Emery copied FedEx's strategy, buying its own planes, opening a small-package sorting center, and pushing overnight delivery. Airborne also entered the small-package air express business. United Parcel Service of America (UPS), the leading package-shipper by truck, moved into the air-express business in 1981. The USPS began heavily marketing its own overnight-mail service after FedEx's Courier-Pak began eating into its revenues. The Postal Service's overnight mail was about half the price of FedEx's, but was not as accessible in many locations.
While FedEx was the leader in the U.S. overnight package-delivery industry, DHL Worldwide Courier Express Network built a similar service overseas; the two would become major competitors when FedEx started building its own overseas network. Such increased competition put pressure on FedEx's niche, but its lead was large and its reputation excellent. In 1983 the company reached $1 billion in annual revenues--the first company in the United States to do so within ten years of its start-up without mergers or acquisitions.
In 1984 FedEx made its first acquisition, Gelco Express, a Minneapolis-based package courier that served 84 countries. Hoping to recreate its U.S. market dominance overseas, the company made further acquisitions in Britain, the Netherlands, and the United Arab Emirates. M
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