Airborne Express

Team 6
John Pistone, Phil Brown, Scott Hultman, Eric Dumain, Dieter Hutter, Tamara Harrison

Description

Domestic Express Mail Industry

Airborne Target Market

Business Customers Large volumes of urgent items to other business locations. Next day afternoon and second day is largest volume Airborne utilizes twice the % of Trucks than Fed Ex saving money, keep price down. Avoid residential, customers with seasonal spikes. Geographic focus on only 50 Metro areas

Fed Ex and UPS Target Market

Target virtually every business as well as individuals Majority of high volume shipments come from catalog retailers

Labor Costs
UPS union labor average $20hr Fed Ex $10-17 Airborne- Ohio hub averages $7hr

Advertising Costs

Overnight afternoon delivery

$90.00 $80.00 $70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $0.00 Letter 1 lb. 2 lb. Fedex UPS 5 lb. Airborne 10 lb. 50 lb.

Under 5 lbs 26% lower price on average than Fed Ex

FedEx approximately $15M UPS between $80-$100M Airborne $0

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

Evaluation
Airborne Cost Advantage Cost per Overnight Letter Fed Ex Airborne Difference $8.55 $7.08 $1.47 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 for high volume low margin business customers. 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

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

Revenues per shipment 85-97

25 20 15 10 5 0 Year 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
8 7 6 5 4 3 2 1 0

Pounds per Shipment '85-97

Fed Ex trend from lighter to heavier, more expensive shipments in order to compensate for low margins on lower cost lighter parcels. Airborne trend from heavier more expensive to lighter less expensive. Taking advantage of lower cost structure able to undercut the market leaders.

Year 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

FedEX Airborne

Fed Ex

Airborne

Recommendation

FedEx $9.00 $8.55 $0.45 Price (revenue) Costs Profit

2,900,000 total targeted buyers between Fed Ex and Airborne

Size: Continue to use the size of Fed Ex and UPS against them High infrastructure needed to cover coast to coast as well as international eats into the unit cost Continue to cover a small market sector, only the 50 metro areas Continue to keep costs down Price: Airborne must stay below $8.55 per letter in order for Fed Ex to continue to accommodate them in this market. Airborne should not adopt the distance pricing, instead develop a bundled price encompass long and short haul control avg. price RPS Alliance: Airborne should not align with RPS Alliance will expand Airborne beyond the 50 metro areas Airborne aircraft operating 80% capacity if RPS ground Airborne does not have capacity to take on much more air without significant investment this investment will affect cost structure, leading to price increases. If price increases or volume increase incumbents will turn and fight

Airborne $8.54 $7.08 $1.46 Price (revenue) Costs Profit

900,000 targeted buyers Airborne

FedEx Accommodate vs Fight Accommodate: (Incumbent price costs) x (market niche) ($9.00 $8.55) x (2,900,000 900000) = $900,000

Fight: (Entrant price costs) x total targeted buyers ($8.54 - $8.55) x 2,900,000 = - 29,000

Overall Recommendation: Due to the UPS strike, customers no longer want to deal with a single vendor this puts Airborne in a good position to grow w/o becoming a threat Airborne should limit itself to the 50 metro areas targeting consistent large volume business to business customers Continue to keep costs down and price under FedExs cost to these customers Adopt bundled pricing to offset variance from distance pricing Reject RPS Alliance