Page 165 - Accelerating out of the Great Recession

ACCELERATING OUT OF THE GREAT RECESSION

overnight. At the time, the fastest air delivery service in the
United States took two days to deliver packages, shipping them
from point to point through the domestic airline network.
Federal Express completely changed that. By obtaining its
own fleet of small jets and routing them through a hub and
spoke system, the company was able to guarantee overnight
delivery. All packages, regardless of where they originated, were
flown to the hub in Memphis, sorted overnight, and then flown
onward to their destinations in the early morning.
The early 1970s were an inauspicious time to launch a com-
pany. Six months after Federal Express began operations, the oil
shock hit. With the United States facing oil shortages, the price
of fuel quadrupled over the subsequent months. While this was
clearly a challenge for a company like Federal Express that
relied so heavily on jet fuel, the company’s management also
saw an opportunity in the crisis.
As U.S. businesses were hit hard, corporate executives cut
back on the use of corporate jets, resulting in a surplus of used
business jets. That surplus led to a sharp drop in prices, and
Federal Express moved quickly to buy the jets. Federal Express’
opportunistic capital spending allowed it to expand its capacity
rapidly so that between April 1973 and May 1974 it increased
the size of its fleet from 6 to 25 jets. Such fast expansion pro-
vided Federal Express with greater economy of scale—and by
1976 it was already profitable.
For Wal-Mart, the 1970s also presented a growth opportu-
nity. Founded in 1962, the U.S. retailer’s growth had been grad-
ual throughout the decade. From 1970, when it formally incor-
porated, growth was rapid—the number of stores grew at an
average rate of 26 percent through the 1970s. Revenues also shot
up in that decade, at no point more quickly than the period

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