Airborne Express

Topics: Costs, Competition, Depreciation Pages: 7 (1084 words) Published: March 10, 2014
3 a) Airborne was very selective about the customers it served and the services it offered. Airborne targeted business customers that regularly shipped a large volume of urgent items and passed over residential deliveries and infrequent shippers.

Operational Activities: Unlike Federal Express and UPS, Airborne owned the airport that served as its major hub. As a result, it did not pay landing or facility fees but had to maintain the airport itself and did not share the expenses with other airlines. Airborne’s fleet consisted primarily of used aircraft for which the total cost was around 12.5 million. This cost per aircraft for Federal Express or UPS was much higher at around $90 million as they purchased new aircrafts. Airborne’s patented cargo containers allowed it to run its aircrafts 80% full compared to 65-70% utilization rate for competitors. Airborne’s parcels were concentrated in major metropolitan areas. 80-85% of the volume was shipped between top 50% metropolitan areas compared to 60% or lower for others. Airborne also distinguished itself by concentrating more on afternoon and second-day deliveries. This allowed them to use trucks more often than its competitors for shipping. This resulted in significant cost saving for Airborne as costs of truck were only one-third of owning and operating similar amount of aircraft capacity. Airborne also did not maintain retail service centers and instead had roughly 11,000 drop-off boxes. It also used independent contractors for almost 65% of its delivery and pickup services which were 10% less expensive than company owned services. An airborne courier picked up and delivered more parcels per stop than Federal express thereby reducing cost-per-unit by 20% for pickup and 10% for delivery. Technological Activities: Airborne was a follower when it came to technology and only introduced new technology after being certain of a clear derived benefit for its customers. Marketing and Sales Activities: Airborne’s main competitive advantage was its low prices compared to competition and its ability to tailor its services to the needs of particular large business customers (Ex: Xerox special sorting customization for 8am delivery). It did not advertise in mass media and instead relied on its 500-person sales force in courting major accounts.

3 b) Estimated cost of shipping an overnight letter for FedEx: $8.55 (Source – Exhibit 3) Estimated Cost of shipping an overnight letter for Airborne: 6.46 (see breakdown in appendix) 3 c) Airborne billed itself as ‘’the flexible, solution-oriented express carrier’’ but was starting to lose this competitive edge as both FedEx and UPS also started offering its trademark 8am custom delivery for any customer. Airborne also competed on its lower priced products. While it could sustain its pricing advantage in the medium term because of its lower operating costs, Airborne needed to invest in technology to automate its operations rather than relying on a manual labour and also improve its services to customers for booking and tracking of shipments. Also, if shorter distance shipments formed a large part of their overall volume, it would make sense to follow distance-based pricing to sustain its pricing advantage with such customers.

The old aircrafts that Airborne used would also have smaller life compared to FedEx and UPS and would also be less fuel efficient. If fuel prices were to increase a lot, it could become a significant expense to Airborne and affect its operating costs.

Airborne operated in an industry with high capital costs and entry barriers. The recent UPS strike meant that a lot of businesses that traditionally used a single carrier would now use multiple carriers to diversify its risks. But Airborne needed to innovate in multiple aspects of its operations including automation, technological advancements, global expansion, generating greater synergies with partners such as RPS and newer distinctive products to maintain its...
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