Airborne

Express
Section A | Group 4

Submitted By:
D Santosh
15PGP013
Kale Varun
15PGP023
Shraddha T Master
15PGP029
Neha Samnhotra
15PGP033
Ravi Shankar Prajapathi
15PGP122

Airborne Express at a
Glance

Private
Airport Hub in
Wilmington,
Ohio
9,00,000
packages
deliveries
each day

20,000+
employees,
13,300 vans,
175 Aircrafts

Airborne
Flower Traffic
Association of
California
founded in
1946

Pacific Air
Freight
founded in
1949
Merged to
form Airborne
Freight
Corporation
in 1968

3rd largest
Industry Player

How has Airborne

survived the
intense
competition and
recently prospered
in its industry?

Porters 5 Forces
High
bargaining
power of
suppliers

High setup
costs
Govt.
regulationsThreat of

Entry
High
Barrier to
Entry

Customers are
price sensitive
and not loyal

Industry
Rivalry
3 Major
firms
6 Second
Tier Player

High
Bargainin
g power of
Buyers

Labour Intensive
Market, Risk of
strikes

High
threat of
substitute
s

Fax / Ordinary
mail / e-mail at
very low price
(documents)

McKinsey 7S
Framework
Strategy:Charging low prices, cut down the
expenses
Structure:Frugal
Systems:technology-oriented
Shared Values: Targeting business customers
and shipping large volume of urgent items
Style:Top executives answered their own
telephones
Staff: Salespeople works autonomously, provide
extensive customer service
Skills:Wide latitude to set prices and were
compensated largely on sales volume

VRIO Framework
Low prices and Ships
large volume
No :- Competitive
Valuable
Disadvantage
Major software
Ye
system
Rare
s
No :- Parity
Costly to imitate or
copy i.e. buying an
Ye
airport
Costly
to
s
No :- Temporary
imitate
Advantage
No :Organised
Ye
to capture
Sustained
s
Value
Advantage
Ye
s

Sustained
competitive
advantage

PEST Analysis
POLITICAL FACTORS
Govt. Regulations
Labour unions

ECONOMIC FACTORS
Marginal cost of
document delivery is
0 cent

SOCIAL FACTORS
Lifestyle
Globalization

TECHNOLOGICAL
FACTORS
Selective in
technology selection,
Wanted others to use
it first FOCUS
Software

Quantify Airbornes
source of advantage?
(i.e. calculate the
relative cost position of
federal express and
airborne)

Income Analysis -1996

percentage of sales)

(as

Relative Cost ($ per unit)

Analysis - 1996
Item

Pickup
Labor
Fuel
Maintenance and
Depreciation
Long Haul Transport
Flight and Trucking related
expense
Hub labor
Hub depreciation
Delivery
Labor
Fuel
Maintenance and
depreciation
Advertising
Sales
IT
Customer Service
Corporate Overhead
Total Cost

Cost Per Unit

FedEx
Airborne
1.09
0.87
0.07
0.07
0.21

0.20

2.44
0.3
0.25

1.64
0.1

2.45
0.1
0.1

1.48
0.1

0.31
0.22
0.21
0.54
0.2
0.97
8.55

0.35
0
0.25
0
0.15
0.9
7.02

Relative Cost ($ per unit)

Analysis - 1996
Main Cost Drivers

Airport maintenance and depreciation

Advertising
IT
Sales, Customer Service

Relative Cost ($ per unit)

Analysis - 1996
Reasons for Cost efficiency
Owned airport(hub) no landing fees
Warehouse space in airport for business customers
Saved on advertising as they had their sales force
directly contact the logistics managers of various
companies
Saved on fleet cost as it comprised of used aircraft

Relative Cost ($ per unit)

Analysis - 1996

Relative Cost Analysis

Airborne overview
Airborne owned the airport no landing fees/ complete control on facility
but nobody to share maintenance cost
Fleet had used aircraft
Patent using 80% of flight capacity
80-85% of volume in top 50 metropolitan cities
30% of delivery by trucks (15% - Fedex)
60-65% of delivery outsourced to contractors; as a result it was 10% less
expensive for the company

Relative Cost Analysis

Airborne overview
FOCUS (~Cosmos) allows to track packages which was value addition to
customers as it was free; also it reduced manual data entry/ paperwork
No mass media communication; 500 person sales force targeting logistics
managers
Known for low prices
Customization for large business customers (Xerox) sort codes/ early
delivery
International operations No significant service advantages
RPS (ground operations) relationship arms-length affair but may come
out with an integrated pickup and delivery system

Revenue ($) and pounds per

shipment 1985-96
pounds per shipment
7.3
6.4
5.6

5.3

6.1
5.1

5.7
5.3

5.4
5.2

5.4
5

5.6
5

5.7

5.8

4.8

4.8

4.8

6.3

6.4

4.6

4.5

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

airborne

Revenue ($) and pounds per

shipment 1985-96

Revenue per shipment difference due to

lack of international presence of Airborne
Gradual decline in pounds per shipment
of Airborne as UPS and FedEx offered
early deliveries to any customer by 1990;
also Airborne was very selective about
customers and refrained from large mailorder residential delivery

Delivery options and rates

($)

overnight afternoon delivery

100
80
60
40
20
0
letter

1lb

2lb
fedex

5lb
airborne

10lb

50lb

Recommendations
Also Postal Service
doing well (express
delivery) in the wake
of UPS strike and
pushing for volume
discount grant;
Prediction of a big
move from UPS

Plan merger /
alliance with
RPS to capture
a bigger chunk
of ground
operations

Should not move towards

distance based pricing as
its core competence is
second day delivery
(usually long distance) and
ground operations which is
also a cost advantage for
Airborne

THANK YOU !