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), Delta Air Lines(DALRQ Quote) and Southwest Airlines(LUV Quote) 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) 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) 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.