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Customers Requirement
Virtually every business & many
individuals used express delivery
service to ship their most urgent documents
and parcels
Urgency of shipment and price played
dominant role in decision to ship by
express mail
Relative price, reliability of carrier, access to
tracking and other information, customer
service, the convenience of drop-off and
sheer habit decided the selection of carrier
In financial services and consulting express
mail had become the standard means of
delivering documents
Perishable goods or time sensitive had
increased over time which drive
of Technology
& equipment
3 major
players and
6 second-provider
Entrants (Low) Low power
tier players
E mail ,Telex, Fax for
Oligopoly
Price wars between UPS and
Document courier
(Consolidated
FedEx
service as almost
Industry)
Competitors imitate product
Zero time at Zero
High barrier to
innovations, price (low
Cost
Entry (BTE)
differentiation)
Facsimile
Huge Investment
Low Margins, high volume
No Substitute for
or capital
required
requirement
parcel (Goods)
Buyer Power
(High)
High Replication
of Innovation
Low Margin
delivery.
Low switching cost
Low product differentiation
Price sensitivity
Volume based discount
Porters 5
force
analysis
Airbornes Background
Airborne Express is a express mail and cargo delivery company
It is the third largest player after FedEx and UPS
Airborne was founded as the Airborne Flower Traffic Association of California in 1946 to fly
flowers to the state of Hawaii.
Airborne Express developed special narrow containers which allows the use of
passenger jet aircraft without needing a large cargo door modification.
Its headquartered in Seattle, Washington, with its own airport hub at Wilmington, Ohio.
Airborne Express targets the business customers that regularly ships large volume
of urgent items
They purposely pass over residential and infrequent shippers
Airborne tailors to specific business needs
Weaknesses
Cost
Leaders
hip
Focus on
business
customers
Labor Costs
UPS union labor average $20hr
Fed Ex $10-17
Airborne- Ohio hub averages $7hr
Advertising Costs
O v e r n i g h t a f te r n o o n d e l i v e r y
AirborneUnder 5 lbs.
26% lower
price on
average than
Fed Ex
$ 9 0 .0 0
$ 8 0 .0 0
$ 7 0 .0 0
$ 6 0 .0 0
$ 5 0 .0 0
$ 4 0 .0 0
$ 3 0 .0 0
$ 2 0 .0 0
$ 1 0 .0 0
$ 0 .0 0
L e tte r
1 lb .
2 lb .
Fedex
5 lb .
UPS
A ir b o r n e
1 0 lb .
5 0 lb .
Customers
Price
Reliability
Brand Name
Access to tracking
Customer service
Convenience of drop off
Customer loyalty is low
Due to the strike customers do not want to
go with just one vendor
$6.04
$2.51
Airborne Advantages:
Twice the trucking over Fed Ex
Majority of trucks are outsourced -10% savings
20% less labor on pick up
Cheaper Hub labor
10% less labor on delivery
Lower IT costs
Lower corporate overhead
Pricing
Distance Pricing rather
than one price for any delivery,
distance pricing allows vendors
to charge more for long hauls,
but less for short distances.
FedEx and UPS both
adopted this pricing.
If Airborne does not adopt
distance pricing discounts
compared to competition on
coast to cost traffic would be
higher
than
on regional
FedEx is
leading
price increase
RPS Alliance
RPS has strength in ground
transportation
RPS has superior information and
tracking system
RPS currently targets large
volume business customers
similar to Airborne
RPS lacks air operations
Cost
Used aircraft purchased for $24 Mn each vs typical costs
Savings
Value
Marketing
and sales forc
Chain
Inbound logistics
Sorting operations
Package shipping
Delivery services
efficient consolidation 80-85% of shipments to/from top 50 metro areas vs 60% or lower for FedEx
and UPS
Targeting higher proportion of afternoon or second day deliveries, enabling higher proportion of van
deliveries 30% of deliveries using vans alone (vs 15% for FedEx)
Extensive use of contractors for vans, handling 60-65% of Airborne volume yielding estimated
further 10% costs savings over own/operate vans
No mass market advertising costs
Less R&D cost and no retail centres and use of own airport as hub
Non-appropriable : non-unionized labor force has limited power to cause holdup. In addition, the company is considered to be conservative and frugal which shows
The biggest
threat
is the de-regulation of USPS.
that there
is limited
slack to
in its
thesustainability
company
FedEx
8 USA based hubs, Hub replacement cost = $800M.
Airborne Express
aircraft depreciation = 175 planes x $24M x 0.0001 = $0.46M / Day
Airborne Express handles 0.9M letters daily, 70% of which travel by air = 0.63M.
Therefore aircraft depreciation per letter runs at $0.46M / 0.63M = $0.73 per letter
transported by air
Fedex
Cost
Airborne Cost
(approx)
Pick up
Labour
1.09 12.11%
0.82
20% savings due to pickup efficiency and 10% savings due to 60%
9.11% contract
Fuel
Maintenance and
depreciation
0.07
0.78%
0.07
0.78%
0.21
2.33%
0.21
2.33%
Sub total
1.37 15.22%
1.10 12.22%
2.44 27.11%
1.01 11.22%
Hub Labour
0.3
3.33%
0.3
Hub Depreciation
0.25
2.78%
0.13
Sub total
2.99 33.22%
1.44 16.00%
1.64 18.22%
10% savings due to pickup efficiency and 10% savings due to 60%
1.39 15.42% contract
Delivery
Labour
Fuel
Maintenance and
depreciation
0.1
1.11%
0.1
1.11%
0.31
3.44%
0.31
3.44%
Recommendations
Implement a pause in their steady pricing reductions- target high net profit margin,
which should be achievable without sacrificing customer base given their efficiency advantages
Airborne should consider two avenues on the reducing package sizes concern
Approaching the rapidly growing major e-tailers such as Amazon and Dell to
secure transport contracts for delivery of products to their clients in major population hubs,
competing on cost efficiencies and customized service including their on-airport storage
Should USPS be granted permission by congress to offer bulk discounts, Airborne
should consider approaching USPS to form a strategic alliance leveraging
Airbornes proven client sales and management skills, for which USPS would have little
embedded know-how
Airborne should cancel the RPS alliance if no significant value adds can be derived
To break out of the modest vertical growth model paradigm, a strategic alliance looks to be
the best option. UPS and USPS are potential options
THANK YOU