Raj Subramaniam
President and Chief Executive Officer at FedEx
Good afternoon, everyone. Thanks to the hard work of the FedEx team, our third quarter earnings were ahead of our expectations in what remains a challenge demand environment. The team delivered outstanding service throughout and following peak, despite significant weather disruptions across the United States. Importantly, our third quarter results also reflect our continued progress on the fundamental transformation of FedEx. As we moved with urgency to realign our cost structure. Our cost reduction actions supported margin expansion at both ground and freight, but have not yet fully offset the impact of continued pressures that Express. Results at Express came in below where they need to be and below the potential we know exists in this business. We are committed to addressing these costs imbalances and will be taking further actions in the coming months, including a more pronounced readjustment of the air network. Because of the magnitude of changes, we are planning across our air network and our continued need to maintain high service levels, there is a lag in the timing of expense adjustments. We expect to see sequential progress in the fourth quarter. Overall, our efficiency efforts are gaining traction, ahead of schedule, and I'm pleased that this translates into an improved earnings outlook for fiscal year '23.
Now turning to Slide 6 for a snapshot of the quarter. Volumes declined by a low double digit percentage across all segments, partially offset by higher yields at Ground, US domestic Express and Freight. This led to a year-over-year revenue decline. While revenue fell across all segments, the decrease was most pronounced at Express.
Adjusted operating margins and EPS declined year-over-year as volume softness was partially offset by higher yields and cost reduction actions. Last quarter, we shared our expectation for continued pressures from lower volume and inflation. But what is also embedded in these results and what I'm seeing first hand everyday our tangible signs of the fundamental transformation happening at FedEx through DRIVE. We are rightsizing our cost base to match today's realities and creating a more efficient and agile network. We're not simply taking out cost, we are simultaneously focused on running our business more efficiently, flexibly and profitably, which will create significant value for our stockholders in the years to come.
I'm particularly pleased with the progress we're seeing in ground. The team has taken aggressive actions to address its cost structure and that's effectively mitigated volume pressures. One of the key drivers of Ground was the ability to manage staffing levels and associated expenses, which resulted in reduced salaries, benefits and purchase transportation costs. Combined these expenses were down 8% year-over-year.
Despite the dynamic environment, Ground continues to deliver for its customers during peak with an average time in transit of approximately two days compared to 2.35 days in fiscal year 2022. In aggregate, these initiatives led to a modest increase in cost per package of 1% despite 11% volume declines, and total operating expenses were down $345 million year-over-year. When combined with our continued focus on revenue quality, total operating income was up 32% year-over-year, and operating margin of 19.7% that improved 240 basis-points year-over-year.
Freight is also illustrated disciplined commitment to profitable growth, revenue quality and managing costs volumes. The team continues to execute cost reduction actions in this regard. Beyond day-to-day management of variable costs, the Freight team is temporarily parking and selling equipment to right size the fleet and reduce future maintenance costs. The team is also limiting hiring and furloughing employees to match staffing with volume levels.
We're taking the relevant learnings from this proven Freight model and implementing them at both Ground and Express. Total operating expenses at Freight was down 6% supporting 270 basis-points of margin expansion in the quarter. Importantly, our cost initiatives did not compromise the consistent outstanding service levels dellaverde by the Freight team.
Turning to Slide 7. We have made significant progress in taking costs out of our network $1.2 billion in year-over-year cost savings in the third quarter. We highly focused on taking permanent cost out of the system and remain on track to generate permanent savings of $1 billion this fiscal year relative to plan.
Last month, we announced a streamlined reporting structure that will reduce the size of our officer and director team by more than 10%. We will continue to aggressively manage headcount including attrition to align our teams with the network changes underway. By the end of this fiscal year, we expect US headcount to be down roughly 25,000 year-over-year.
At Express our cost base is constrained in the short term, where Express network is vast and complex and requires time to adjust to changing demand conditions. Therefore, we are taking additional steps to address our fixed expense structure. This quarter, we reduced flight hours by 8% and salary and benefit expenses by 4%. We also parked an additional nine aircraft downgaguged on certain routes and implemented various productivity improvements. As a result of these actions, we mitigated 45% of total revenue declines on an adjusted basis. This was significant improvement versus the first half.
Within the US domestic Express, we implemented a single daily dispatch of couriers in February. This change removes domestic pickup and delivery routes, improves hub and ramp efficiency. We expect this will achieve about $50 million in savings in Q4 and ramp-up to about $300 million annual savings by fiscal 2024. We expect progress to accelerate in the fourth quarter with total flight hours expected to be down double digits and further FTE reductions by year end. This will support mid to high single digit reductions in total expenses year-over-year at Express. We also plan to temporarily park additional aircraft in the fourth quarter. With continued cost discipline, we anticipate sequential operating margin improvement in the mid single digits for the fourth quarter. Assuming the challenging demand environment persist in Q4, we expect to be able to mitigate at least 60% of the revenue related headwinds we are facing in Express. This supports improved profitability in the fourth quarter compared to the third. We will build profitability from here at Express.
Before we dive into the financial results in more detail, I'll provide a quick update on DRIVE, the program to support our transformation to create a more nimble efficient and profitable FedEx. We are on track to deliver $4 billion of permanent cost reduction by the end of fiscal 2025. I'm very pleased with the progress the team has made in identifying actions that will not only reduce costs, but make our network more agile and flexible as we execute network [ indecipherable]. One part of this effort, as shown on Slide 8, this to reconfigure our air network. This requires many steps including plans currently being developed to phase out our fleet of MD levels. Our aircraft modernization program and use of 777 and 767s affords us the ability to flex our plans. And as we operate more collaboratively we are leaning into the ground transportation more, requiring less capex, while enabling us to reconfigure our network more quickly. This directly supports our goal for meaningful ROIC improvement. In the coming years. We're excited to share more about the strategy and our DRIVE program update on April 5. There we will focus on the actions we're taking to improve our performance along with additional information to help you better model the impact on our progress.
Now let me turn it over to our Chief Customer Officer Brie Carere, who will discuss market trends and our commercial strategy in more detail. Brie?
