AIRBORNE EXPRESS CASE STUDY

Introduction:
Airborne Express is a delivery company for express mail and freight. After FedEx and UPS, it is the
third largest. It was established in 1946 as the California Airborne Flower Traffic Association to
fly flowers to the state of Hawaii. It has developed special narrow containers that enable
passenger jet aircraft to be used without the need for a major modification of the cargo door. It
has its headquarters in Seattle, Washington.

It has its own air hub at Wilmington, Ohio. They cater to business customers who ship large
volumes of urgent items on a regular basis. They pass over residential and infrequent shippers
deliberately. It adapts to the specific needs of the business. Airborne currently has 13,300 vans,
12,700 full-time fleet of 175 aircraft and 8,000 part-time employees. It owns the airport, which
is its main hub, unique to other express mail companies. Freight Online Control and Update
System (FOCUS) is the primary program. This allows customers to track shipments and send
details on delivery, but it is not as sophisticated as their rivals. They target major shippers through
a sales force of 500 people. They also don't advertise in the mass media.

Problem Statement:
Airborne is struggling at the third position in the market with 16% market share. Giants like
Federal express with 45% market share and UPS with 25% market share are posing major
competitive challenges for Airborne. Airborne wants to target more customers and expand their
share in market.

Airborne’s advantage:
 Used aircraft purchased at $24MM each vs. typical new aircraft cost of $90MM
 Aircraft use by an average of 65-70 percent compared to the industry
 Targeting customers with concentrated shippers / receivers for more efficient
consolidation–80-85% of shipments to / from the top 50 metro areas versus 60% or less
for FedEx and UPS. It, in effect, helps Airborne couriers to pick up more packages per stop
than FedEx–cutting pick-up work by 20% and delivery by 10%
 Targeting a higher proportion of afternoon or second day deliveries, allowing for a
higher proportion of van deliveries – 30% of vans alone deliveries (compared to 15% for
 FedEx) with non-flight deliveries typically 1/3 of the total cost of equivalent aircraft
capacity
 Extensive use of contractors for vans, handling 60-65% of Airborne volume – resulting in
additional cost savings of an estimated 10% for own / operated vans
 No mass advertising costs

3: Estimated Cost Structure of Federal Express and Airborne Overnight Letter FedEx Airborne Comments
FedEx Airborne
Item Cost per unit Cost per unit
Pickup
Labor $1.09 0.87 20% savings on labour
Fuel $0.07 $0.07
Maintenance and depreciation $0.21 0.20 6% of identifiable assets are depreciated
Subtotal $1.37 1.14 SUM

Long-haul transport
Flight- and trucking-related expense $2.44 1.88 1/3rd on trucking is cheaper and 15% more by truck
Hub labor $0.30 $0.30
Hub depreciation $0.25 $0.25
Subtotal $2.99 2.43 SUM

Delivery
Labor $1.64 1.48 10% saving on labour
Fuel $0.10 $0.10
Maintenance and depreciation $0.31 0.28 10% saving on maintenance and depreciation
Subtotal $2.05 1.86 SUM

Advertising $0.22 0 Advertisement expenditure is nil

Sales $0.21 0.31 Operating margins

Information technology $0.54 $0.54 IT is same as airborne use to copy its rivals

Customer service $0.20 0.20 Customer service is same

Corporate overhead $0.97 0.44 work saleforce is 500 in case of airborne as compared to 1100

Total cost $8.55 6.92 TOTAL

Margin $0.45 0.35 5% (relative to fedex)

Price* $ 9.00 7.26 TOTAL

Conclusion:
To conclude, the Airborne can earn a margin of $2.34 per letter by keeping the cost constant according to
that of the $9 competitor. Competition comes from places that are unexpected. They should keep an eye
on the Postal Service as during the UPS strike they did very well. We also need to be mindful of UPS '
potential activities because they will probably try to recover some of the volume lost. Airborne should
consider an alliance or merger with RPS in order to continue healthy growth over the years.