Airborne Case Study Essay
Airborne Case Study
Q1. How and why has the express mail industry structure evolved in recent years? How have the changes affected small competitors? The Express mail industry in the United States had a volume of $16-17 billion on expedited shipments in the year 1996. In the years before shipment volumes has risen 15-20% per year. However due to higher competition prices have fallen which resulted in a rise of only 10-15% in total revenues. As an example of this stands the revenue and the operating margin of the biggest player that make up 45% of the market.
Federal Express’ revenue has more than quadrupled in the ten years prior 1996, however its operating margin has more than halved. (Exhibit 2) The increase in shipments is partly due to lower prices, which makes it more attractive for businesses to use shipments more frequently and reduce stocks and inventory to compete on the basis of time to market. Also the price sensitive businesses of catalogue retailers required urgent shipment. In order to cope with the quickly growing numbers of packages (1997 Federal Express delivered 2. million packages a day), the companies started using their own airplanes rather than using commercial airlines to do the job for them.
Processes have become highly automated, starting with hand-held computers that give each parcel its own barcode to track it at each stage of its journey. The information is then passed on to central computers that allow customers to follow its deliveries online. Hub facilities are ever growing now being able to sort up to 300,000 packages per hour (UBS hub). Due to high automatization and low margins in the industry it becomes increasingly difficult for second-tier players to survive in the market.
Since 85% of the market are in the hand of the three major players; Federal Express, United Parcel Service and Airborne Express, the six second tier players had to find their niche in the market. DHL specified on the international market. The company is responsible for 40% of all trans-border express shipments in America, which makes up to 80% of DHL’s shipments. DHL is also the specialist for services that include fast shipments to the far and hard to reach corners of the world, with hubs situated in Nairobi and Bahrain.
TNT’s focus lies on international markets as well, however focuses its efforts on Europe. Another second tier player is BAX Global who specialized in business-to-business heavy cargo. Earlier BAX Global was focused on the market for overnight letters, which resulted in large losses, till the strategy was shifted towards heavy cargo. The company RPS does not offer overnight delivery but focuses on two-day delivery and a cheap group network with a sophisticated information technology, targeting price-sensitive business customers.
Q2. How has Airborne survived, and recently prospered, in express mail industry? In the fife years prior 1997 Airborne Express has grown faster than its two bigger rivals, giving it about 16% of domestic express mail market share in 1997. Airborne has achieved this by a couple of measures that allowed it to keep its costs down and guaranteed Airborne Express success in its niche. One of the key decisions of Airborne Express was to target regularly shipping business customers and purposely passing over residential deliveries and infrequent shippers.
Ray Berry, vice president of Field Services Administration, commented this selection of customers: “ Since we can’t be all things to all people, we pick our kind of customer deliberately. ” And it has payed off; 1997 Airborne delivered 900,000 packages and documents each day. As a major hub for this serves an airbase in Wilmington, Ohio. In contrast to its competitors Airborne Express owns the airport, which brings some advantages. For example leases Airborne Express warehouse space on the airport to businesses, allowing them to ship merchandize the next day even if orders come in as late as 2AM.
Another key factor for low costs is that Airborne Express relies less on automation and more on its human workforce than its competitors; hiring low part-time employees with wages of $7 per hours. Airborne Express’ air fleet distinguishes itself also from the competition. By primarily buying used aircrafts costs are held down. Also the aircrafts are on average 80% loaded; compared to 60% for Federal Express. Furthermore Airborne Express tries to avoid using airplanes whenever possible, resulting in 30% of non-air deliveries compared to 15% non-air deliveries at Federal Express.
Since the cost of non-air deliveries is estimated to be only 1/3 of the cost of air deliveries, this depicts how well Airborne Express is able to save money. Another cost reducing factor are independent contractors hired for parcel pick up or delivery that save around 10% of costs compared to company employees. Airborne Express Marketing and Sales team does not invest in costly wide span advertising campaigns, but rather invest in advertising targeting logistic managers of major shippers.
Known for its low prices it tries to gain customers, large businesses, with a 500-person sales force and the promise to tailor the services needed for its customers with solution-oriented approaches. Last but not least Airborne Express started to forge a relationship with RPS, an expert for cheap ground deliveries, trying to gain synergies and being able to offer integrated solutions on a case-by-case basis for customers.
Q3. What would you recommend Robert Brazier, Airborne’s President and COO, to do in order to strengthen the company’s position? As the world moves closer together and quick logistics and transportation are getting more and more important, the global express mail market is still growing. In order to secure growth and market share we would advise Airborne Express to push forward the relationship with RPS, maybe consider a merger, to fully gain the synergies. Also it is of key importance to strengthen the position in the market by gaining new customers, providing them with worldwide “flexible, solution-oriented express” services in the B2B area. This could be achieved by gradually increasing international activities on a customer case-to-case basis.
Subject: United States,
University/College: University of California
Type of paper: Thesis/Dissertation Chapter
Date: 24 October 2016
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