Airborne Case Study

Submitted by: Tanuvi Saha (19IB356)

Introduction
Airborne Express is America's third-largest and fastest-growing international air express
delivery company. By 1997, it controlled roughly 16% of the national exchange postal market.
It offers a time-sensitive distribution in the United States and abroad of papers, letters, small
packages and freight. The Company has many advantages compared to its rivals, such as
delivery services at a lower cost of up to 20 percent compared to Fedex and UPS; running the
nation's only private Foreign Trade Zone in Wilmington; more flexible and offering more
custom-designed services. The increased speed of business and shorter fashion cycles in other
branches appeared to extend customer base and increase the express amount delivered for the
express industry by each customer. As prices have dropped, however, industry total revenues
have risen less than the volume increase it has delivered. In order to achieve its long-term
objectives, Airborne Express should concentrate on sales and low-cost strategy. Airborne
currently has 13,300 vans, 175 aircraft with 12,700 full-time and 8,000 part-time workers. It is
owned by the airport that is its primary hub, exclusive to other express mail companies
 It does not have to pay landing fees
 It does not have to tailor to other facility needs
 If has to maintain the airport
 And it does not share other expenses with other airlines

Problem Statement
The development of business strategies to compete with Federal Express (45 percent) and UPS
(25 percent) as leading market players is a challenge for Airborne Express. Because Airborne
Express is the third largest player with a 16 percent market share, it wishes to boost its market
growth by targeting more customers.

Case Analysis
In 1973 Federal Express invented the concept of overnight express package, followed by other
two largest express companies-UPS and Airborne in the early 1980s.The fast growth of the
express mail industry was mainly due to express delivery service. The conventional express
industry is being challenged with zero-cost faxes and electronic mails. FedEx and UPS have
been selling at a lower price and have introduced more technologies. The industry is well
consolidated and very barrier-free because the network and infrastructure support require a
huge capital investment. The Five Forces Framework Analysis The risk of possible competitors
entering this sector is very high: it needs huge investments in the network and infrastructure
support. Airborne was known for its lowest prices. It offered the lowest price of overnight,
morning, afternoon and second day delivery as compared to UPS and FedEx. Although
airborne is one of the three bigger ones, it is never a match to FedEx and UPS, which operate
to a much greater extent. Yet it has risen much faster than any of its competitors over the past
decade and built up its own market.
Airborne uses cost-effective survival strategies to gradually improve its profitability. For
several reasons its labour and delivery costs are lower than FedEx and UPS:
 It has no retail service centres
 They own and operate only part of their shipping vans; they have an airport to serve
their main hub, so that they do not have to pay landing fees nor face any obstacles in
adapting the facility to their needs. It also operates an external trade area with a
reinvestment law zone that provides for tax benefits for property
 The company buys and modifies second-hand aircraft according to its needs, saving a
great deal of money. The company can rent their warehouses to companies that the
retailers can store and deliver goods through Airborne on the same day.
 An airborne mailbox uses a more efficient per-work method to collect and deliver more
pieces per stop than a FedEx driver.
 Due to the good amount of deliveries on afternoons and on second days, its rate of use
for trucks is far better than its rival.
 The cost is reduced, and 30 percent of their cargo is transported by land. This is why
Airborne is known for its low prices.
All the above traits have made Airborne survive and thrive in the
cruel domestic competition. In addition, Airborne should be ready to face up to the steps
and strategies of The Postal Service, which have reawakened its ambitions through its
admirable performance during the strike, and UPS, which would play some role in
restoring its lost volume. In summary, Airborne Express is the fastest growing air
express provider in the United States and offers great cost advantages over other major
players. While it retains only a small portion of the big three market and may never
compare to FedEx and UPS, it works effectively within its own territories and aims to
broaden its customer base.
Item FedEx Cost Estimated Airborne Cost
Pickup
20% Pickup savings due to efficiency, 10% savings of
Labour $ 1.09 12.1% $ 0.82 9.1% 60% pickups by contractors
Fuel $ 0.07 0.8% $ 0.07 0.8%
Maintenance & Depreciation $ 0.21 2.3% $ 0.21 2.3%
Subtotal $ 1.37 15.2% $ 1.10 12.2%

Long-haul transport
Flight & Trucking related $ 2.44 27.1% $ 1.55 17.2% See previous workings in part 1 and 2
Assume unchanged - that the lower automation
Hub Labour $ 0.30 3.3% $ 0.30 3.3% offset the lower labour costs
With lower automation, there is lower cost. Assume
Hub Depreciation $ 0.25 2.8% $ 0.13 1.4% 50% lower
Subtotal $ 2.99 33.2% $ 1.98 21.9%

Delivery
10% Pickup savings due to efficiency, 10% savings of
Labour $ 1.64 18.2% $ 1.39 15.4% 60% pickups by contractors
Fuel $ 0.10 1.1% $ 0.10 1.1%
Maintenance & Depreciation $ 0.31 3.4% $ 0.31 3.4%
Subtotal $ 2.05 22.8% $ 1.80 20.0%

No mass market advertising, assumed 5c for

Advertising $ 0.22 2.4% $ 0.05 0.6% targetted ads

Sales $ 0.21 2.3% $ 0.26 2.9% Targetted sales assumed to come with 25% premium
Fast follower approach - assume 25% reduction in
IT $ 0.54 6.0% $ 0.41 4.5% costs
No customer service centres for drop off, assume
Customer Service $ 0.20 2.2% $ 0.10 1.1% halved cost
Corporate Overhead $ 0.97 10.8% $ 0.97 10.8% Suspect lower, but leave the same
Total Cost $ 8.55 95.0% $ 6.66 74.0% 20% Lower costs

Margin $ 0.45 5.0% $ 2.34 26.0%

Price $ 9.00 100.0% $ 9.00 100.0%