Airborne express case study

Topics: Cost, United Parcel Service, Transport Pages: 5 (1504 words) Published: December 3, 2004
Airborne Express, an air express transportation company has succeeded to compete with a few big competitors such as Federal Express and United Parcel Service (UPS) even it does not have funding as much as its competitors. In 1996, it held third position in the industry with 9 percent of the market. Even Airborne is smaller size company compared to its main competitors, it still can survive with the competitive advantage through its resources and capabilities. With some unique resources and core competences, a company may have competitive advantage over its competitors, and this is the way small capital company able to compete with its competitors.

Airborne Express is the first and only air express transportation company that owns an airport. Because of the limited control, Airborne has purchased an airline at Wilmington in 1980. Since then, the airport became the hub of the company, and all the operations of the company were conducted here. It is also the biggest privately owned airport in United States. With the ownership of the airport, Airborne is able to control the operations more easily. Besides that, Airborne does not need to pay for any landing or service fees to the airlines company like its competitors. Comparably, Federal Express and UPS own the planes but still need to lease the airport from other party. It helps Airborne to save a lot of costs. Apart from that, Wilmington airport is one of the strategic airports in United States. It means that the place is having a well weather record. For express air transportation industry, weather is a big factor that can affect the daily business operation. If the weather is bad, the shipments will not be sent to the final destination at the promised time. Time is the promise to the customers and it does affect the confidence of a company's customers.

Besides airlines, Airborne also has a complete system of ground transportation. With the establishment of trucking hubs in some places, Airborne able to deliver the shipment that near to the hub using the ground transport. Almost 25 percent of the company's domestic volume is dealt with ground transport. However, the cost of service by ground transport is not transparent to the customers who assume that the packages are flown. Thus, the charge is same with the air-transported goods. Compare to air transport, ground transportation costs five times lower. From here, the profit margin has been increased. In the other way, the company also can offer lower price for ground transportation packages. Instead of making more profit, the company can utilize the low cost benefit to compete with its competitors.

In 1996, Airborne Express owned a fleet of 105 aircraft. To keep the capital expenditure down, Airborne has purchased only used planes. The planes will be modified to suit its specification for air express transportation. The cost of purchase and modification is $30million lower than purchasing a new plane. Compare to other companies, a big amount of money is being saved by Airborne. Further more, Airborne's DC-9 and YS-11 aircraft require only two person cockpit crew compared to normal three person crews required in Federal Express and UPS. Labour cost has been saved again. Airborne also have its own maintenance facility in Wilmington. It is the only all-cargo carrier to do so. It can handle most if the maintenance works except major engine repairs. It was estimate that the labour costs of $16 per hour is $49 lesser than the subcontracted labour cost. It was a major source of annual cost savings.

Instead of serving all kinds of customers, Airborne decided to focus on serving the needs of high volume corporate accounts. It is because the severe competition and the cost of serving small customers. The company is able to establish scheduled pickup routes and use it as ground capacity more efficiently. Due to this factor, the unit cost structure has been reduced. According to the Airborne executives, their unit cost is $3...
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