UPS is cutting costs in its air network as more shippers turn to the company's ground shipping services, Chief Financial Officer Brian Newman said on the company's April 25 earnings call.

In UPS's U.S. domestic business, average daily air traffic fell 16.7% year-over-year in the first quarter, while average daily ground traffic fell just 3%, Newman said.

The delivery giant has worked to cut operating expenses in its air network as demand falls. It has reduced aircraft rotation times in its two-day shipping operations by "adjusting package flows to maximize the use of our next-day flights," Newman said.

In an inflationary environment, switching from air cargo to slower but less expensive ground transportation becomes more attractive to businesses. As UPS and other carriers steadily improve transit times across their ground networks, the tradeoff is easier to justify.

UPS’s SurePost service, which uses the U.S. Postal Service for last-mile deliveries, performed well in the first quarter, showing the appeal of low-cost shipping options in uncertain economic times. SurePost’s first-quarter volumes were up 1.8% year over year, even as the company’s overall daily volume in the U.S. fell 5.4%, according to Newman.

The drop in demand has also prompted UPS to adjust its international air cargo network. The company has reduced scheduled flights to adjust to lower demand, but it can still quickly add flights where needed if passenger traffic rebounds faster than expected, Newman said.

"Across our global operations, we will continue to manage headcount based on volume levels," Newman said. "In terms of managing expenses, we see opportunities to further reduce costs by leveraging technology."

Rival FedEx is also cutting costs in a weak demand environment. FedEx President and CEO Raj Subramaniam said on a March earnings call that its express division reduced flight time by 8% and parked an additional nine aircraft in the quarter ended Feb. 28. The company also relies on third-party airlines to deliver less urgent shipments, while its own fleet focuses on priority package volumes.

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