Cargo Carriers Monetize Mail

Decades after it underwrote the creation of U.S. commercial aviation, the Postal Service continues to reduce its reliance on the nation's passenger airlines -- and the switch is costing the domestic carriers hundreds of millions of dollars.

Between 2000 and 2005, passenger carriers' share of total postal shipments fell by 65% to 789 million pounds, Postal Service figures show. During the same period, revenue from the 10 largest mail contracts held by passenger airlines fell 52% to $456 million, according to the federal Bureau of Transportation Statistics.

AirTran Airways(AAI Quote - Cramer on AAI - Stock Picks), Delta Air Lines(DALRQ Quote - Cramer on DALRQ - Stock Picks) and Southwest Airlines(LUV Quote - Cramer on LUV - Stock Picks) have made moves to end their domestic mail contracts, saying it no longer fits their operating models, in some cases because tougher requirements make the work cost-prohibitive.

"By putting freight in the cargo space that was traditionally reserved for mail, we see much better revenue opportunities," said Delta spokeswoman Gina Laughlin. Delta had mail revenue of $58 million last year, BTS data indicate.

Meanwhile, United Airlines (UAUA Quote - Cramer on UAUA - Stock Picks) stopped carrying domestic mail on June 30, saying it failed to qualify for a five-year contract renewal because of shortcomings with its on-time delivery performance, but it will continue to transport international mail. United's 2005 mail revenue totaled $150 million, according to the BTS.

Friendly Confines

These recent changes have followed a groundbreaking arrangement that was reached in 2001, when FedEx(FDX Quote - Cramer on FDX - Stock Picks) signed a no-bid, seven-year $6.3 billion contract to carry mail. Four weeks ago, FedEx said it had extended that contract until 2013.

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