FAA Grounds 9% of UPS MD-11 Fleet, Pressuring Margins after Volume Decline
The Federal Aviation Administration grounded 9% of UPS’s MD-11 fleet after a Louisville crash, straining its logistics network. For 9M 2025, UPS saw average daily package volume fall to 19.97 million, total revenue drop to $64.18 billion and operating margin shrink to 6.8%, prompting analysts to forecast 3% revenue and EPS declines.
1. Revenue and Volume Declines Persist
United Parcel Service reported a third consecutive year of falling average daily package volumes, which declined from 25.25 million in 2021 to 19.97 million over the first nine months of 2025. Total revenue peaked at $100.34 billion in 2022 before sliding to $90.96 billion in 2023 and $91.07 billion in 2024, with year-to-date 2025 revenue of $64.18 billion. The ongoing reduction in volumes has been compounded by the company’s decision to reduce lower-margin orders from its largest online retail customer, boosting revenue per package by 17% since 2021 but leaving overall top-line growth elusive.
2. Operating Margin Compression
UPS’s adjusted operating margin has contracted sharply from a pandemic-era high of 13.8% in 2022 to 6.8% through the first nine months of 2025. Key drivers include higher labor and pension costs under the new Teamsters contract, increased fuel expenses, regulatory fines and impairment charges, and ongoing investments in digital and logistics platforms. These pressures pushed diluted earnings per share down from $13.20 in 2022 to $4.46 year-to-date 2025.
3. Strategic Cost Reductions and Diversification Efforts
To counter revenue headwinds, UPS has targeted $3.5 billion in cost savings for 2025 through headcount reductions, greater automation of sortation and handling processes, and consolidation of network facilities. Simultaneously, the company is pivoting toward higher-margin segments such as healthcare logistics, small-to-medium business deliveries and business-to-business shipments, aiming to offset volume losses by boosting margins in these specialized services.
4. Outlook for 2026 Recovery
Analysts forecast that full-year 2025 revenue will decline by 3% and diluted earnings per share by a similar amount, but they project flat revenue and a 7% EPS increase in 2026 as cost-cutting and diversification initiatives take hold. However, the indefinite grounding of roughly 9% of the air fleet’s MD-11 aircraft following a fatal incident is expected to further strain operating margins during the holiday season and into early 2026, making visibility into recovery contingent on the company’s fourth-quarter 2025 earnings report.