Order #408046 Topic: microeconomic issues

April 20 2019

FedEx Microeconomic Issues

Government regulation and labor unions played an essential role in the growth of FedEx in the period 1970-1980. Some of the key impacts of the two included benefits to the employees, expansion of business globally, and the addition of new aircraft to their fleet. Hence, as a result, FedEx has been able to maximize its profits making it a leading company in the industry by 1980 (FedEx).

Throughout the history of the airline industry, the US government has played an essential role in regulating the activity of the companies. Before the main intervention in 1978, the government regulated many areas including routes, schedules, and fairs through the Civil Aeronautics Board. However, the deregulation in1978 ushered in the new era of the passenger’s air travel competition (Pickerel, 46).

In 1977, the air cargo was deregulated. In 1978, the lobbying led by FedEx saw the passing of Public Law 95-163 which is the Airline Deregulation Act of 1978 which enable the cargo airlines to be in a position to use large planes. The act encouraged expansion of previously prohibited geographical routes. The bill was faced with a lot of opposition especially from the major airlines which feared competition, the safety advocates who feared scarification of safety measures and from the labor unions who were afraid of non-union members. However, due to public support, the bill stood very strong to be passed by Congress. The passing of the bill into law benefited the airline companies in a significant manner by offering generous subsidies and unemployment benefits in case the employees lost their jobs (FedEx).

The company that saw the most benefits was FedEx. The airline deregulation act of 1978 saw the restriction removal on some of the important routes FedEx desired to maximize on. Some of the key additions they made to their fleet, as a result, were Boeing 727s and several other larger planes. These were of essential value to them. In 1978, FedEx was able to issue its shares to NYSE, all thanks to the new plane additions. By 1980, FedEx had also managed to implement a couple of centralized computer systems for the management of airlines, people, weather, vehicles and packages on the real time. By 1980, FedEx was in a position to deliver its packages to more than its 90 cities in the United States and had gone beyond US borders into Canada. By the end of 1980, it was delivering 65,000 parcels daily.

Another key effect of the deregulation was the abandonment of cities made by competitors. Many airline cargo companies’ including a United Airlines were flowing to California, Bakersfield, and some of the oil booming cities. But with the deregulations, they abandoned some cities due to their small size, instead focusing more on heavily populated cities such as Las Vegas and San Francisco. With competitors withdrawing, FedEx was able to get a hold of these smaller cities and increase its profit. Competition in the delivery of cargo services in these smaller cities was reduced leading to maximization of profits and efficient conduct of business (Freeman, 747).

Therefore, the passing of the airline deregulation act of 1978 was important for FedEx since it allowed them to use larger aircrafts namely McDonnell-Douglas DC-10s and Boeing 727s. With more airplanes at its disposal FedEx was able to grow rapidly. As a result of deregulation, FedEx was well established by 1980 leading to annual growth of the industry by 40 %, therefore, at the time, it was among the leading companies in the industry. (Funding Universe). The deregulation act has impacted the market outcome by allowing them to use larger aircrafts, opening of new operation lines, and making it easy for new airlines to join the market and average fairs for the access of services. Therefore, they have been able to maximize profits and compete efficiently leading to better services for the customers (FedEx).

One of the ways through which FedEx helped insure the welfare of its employees was by creating a credit union. FedEx Director Fred Smith approached one of the employees by the name Charlotte McNeal and asked her to help him create a credit union. The purpose of the formation of the union was to make the employees lives easier by providing exclusive benefits for them. Therefore, a Federal Express Corporate Credit Association (FECCA) was established and was accredited charter in 1974. The first meeting was held in Federal Express hangar basement in the makeshift office. They opened the office later in the year at Corporate Avenue in Memphis, TN. The union was in a position of ensuring that their welfare be improved. The company was not impacted by the minimum wage since it worked to ensure that their employee's welfare is maximized (FedEx).

The company relies on high-skilled labor which usually affects its supply to the company. The number of those who qualify to work for the company are minimal. Hence, there is minimal competition for the high skilled. The wage rate, as a result, is very high, which makes FedEx remain one of the best employers in the world. The company uses more capital compared to labor to produce its products, this has allowed them to spend more on new aircraft and other assets (FedEx).

Globalization has also played a significant role in FedEx growth. The world economy has become more integrated and requires companies to sell and outsource globally. Therefore, FedEx has gone global to facilitate the delivery of services, acquisition of its assets and acquisition of information focused on facilitating global reach.

FECCA. "About Our History." Fecca, FedEx, April 20, 2019, https://fecca.com/about-us-history/