3. Now consider the situation of Airborne Express in 1997:
a. What activities does Airborne perform differently / more effectively than its competitors? Airborne Express is unique to its competitors in several ways. First of all, Airborne Express targets business customers that regularly ship large volume of urgent items, primarily to other business locations, by-passing residential deliveries and infrequent shippers. This allows the company to focus its deliveries to major metropolitan areas to as much as 80 – 85% (compared to below 60% for FedEx and UPS). In order to secure large business accounts, Airborne markets itself as a “solution-oriented express carrier” by performing highly customized services for companies such as Nike, Compaq, Technicolor and Xerox. For example, Airborne invested in special sort codes to emit a beep in each barcode scanner when scanning a Xerox package to ensure that those packages are delivered first.
Airborne Express also differentiates itself from competitors in several ways operationally. Airborne Express owns the airport in Wilmington that serves as its major hub. As a result, Airborne does not have to pay landing fees, unlike its competitors, and can tailor the facility to its needs. These cost savings are partially offset by the fact that Airborne is unable to share facility expenses with other airlines. In addition, Airborne had built warehouse space on its Wilmington property which is leased to business customers. Airborne’s competitors such as FedEx and UPS offer similar warehousing options but not on the airport site itself. Airborne is able to reduce property tax arising from owning this facility by possessing the Community Reinvestment Act zone status.
Airborne’s fleet consists primarily of used aircrafts that are modified for its needs. Airborne’s patented cargo containers allow the usage of passenger doors without needing a large cargo door. Airborne also runs its aircraft roughly 80% full as compared to its competitors’ utilization rates of 65 – 70%. As 80% of the costs of a flight is fixed, this allows for savings that can be passed on to end customers via lower pricing (Exhibit 8 shows that Airborne charges up to 24% less than its competitors). Moreover, as a greater portion of Airborne’s volume consist of afternoon and second-day deliveries, Airborne can utilize trucks more often that its’ competitors, saving 2/3 the cost of owning and operating a similar amount of aircraft capacity.
In its pickup and delivery activities, Airborne differ from its rivals in two main areas. Firstly, Airborne do not maintain retail service centers, opting instead for drop-off boxes. Secondly, Airborne outsource 60 – 65% of its deliveries to independent contractors that are 10% less expensive than maintaining its own pickup and delivery services. In addition, a typical Airborne courier pick and deliver more parcels per stop than competitors. This reduces labor costs per unit by almost 30% (20% for pickup and 10% for delivery).
Other areas in which Airborne differ from its competitors, although not necessarily more effectively, are in its technology and marketing and sales functions. Airborne utilizes FOCUS as its major software system that is comparable to FedEx’s system and its internet site is less advanced that its competitors. Airborne also do not advertise in the mass media, instead targets major shippers via its 500-person sales force.
b. How much does it cost FedEx to ship an overnight letter? How much does it cost Airborne? It costs FedEx $8.55 to ship an overnight letter. For Airborne, based on information provided by the case study, the cost is approximately $7.54 or 13% less than FedEx, using conservative assumptions. This is supported by looking at the list price that both FedEx and Airborne charges to customers, which is about 15% apart). See Appendix I on how the computation for Airborne’s cost is achieved.
c. Are Airborne’s competitive...
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