Airborne Express’s Competitive Advantage

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Subject: Airborne Express’s Competitive A dvantageOverviewThis memo explains Airborne Express’s competitive advantage over its competitors and how Airborne could survive and recently prospered in its industry. Airborne’s competitive advantage was based in reaching lower costs. To support this point, we present Ai rborne’s strategy follow by an evaluation of the coherence between its organizational practices and its strategy, and finally an analysis of the sustainability of its strategy. We will show in detail the lower cost structure of Airborne Express compare with FedEx, the number one company of the industry. A detail explanation of Airborne’s competitive advantage is shown in Exhibit 1 where is shown how Airborne was able to reduce the unit cost of an express overnight letter in 23% comparing with FedEx. Airbor ne’s StrategyThe U.S. express mail industry in 1997 had revenue of around $17 billion. The main participants were FedEx with 45% market share; UPS with 25% share and in a third place Airborne with 16% share. In particular Airborne’s strategy was to provid e the cheapest reliable express delivery service mainly to corporate accounts in major metropolitan areas. In fact, 80% of Airborne’s customers were large business located in metropolitan areas. The service was in most of the cases for overnight shipment but with a delivery set at noon, later if you compare with the competition that provides a service at 8AM. It is our opinion that Airborne’s clients were loyal to the price of the company and not to its brand, the company just needed to have a service in acceptable standard level and Airborne accomplish that through imitation of any successful new technology implemented by its competitors. In order to get an acceptable customer service level the company product not only included the delivery, but also a warehouse space service and a customer service with all the necessary basic characteristic offered by its competitors, as a website with the possibility of tracking the packages. In order to differentiate the company among its most important clients, Airborne provided a customize service to its top clients, for example, with differentiate delivery time.Airborne’s operations where quit different than FedEx and UPS case, Airborne owns its main hub and most of its trucks were independent contractors. Airborne didn’t have retailer stores and its geography was mainly domestic with only a low investment overseas.Competitive AdvantageAirborne’s competitive advantage was based on low costs. The company was able to deliver an express mail with a cost approximately 20% lower than its main competitor FedEx (Exhibit 1). The main savings comparing with FedEx were in four areas: transportation, advertising, labor and technology. Airborne had lower pickup and delivery costs thanks to preference for ground travel and independent contractors. FedEx had marketing sales of around $138 million in 1996, while Airborne used its sales channels for a direct advertising. FedEx culture was highly focus on people with high expenses in training programs and human resources in general that Airborne seems to have in a very limited way. Finally, Airborne invested only selectively in technology while FedEx was always looking for the last available innovation.Strategy EvaluationMost of the firm organizational practices were coherent with its competitive advantage. First, Airborne was focus in getting volume accounts with a preference by large businesses. Second, Airborne used a higher rate of truck delivery than its competitors; trucks were one third cheaper than aircrafts in comparable capacity. Finally, Airborne used contractors that handled 60-65% of volume, which was 10% cheaper than a comparable own-company delivery service. Airborne is also successful addressing key industry challenges, it kept a low cost sales strategy replacing marketing by a customized service and taking advantage of having an airport. The imitation of Airborne’s airport was difficult to accomplish, however the customization and cheaper structure was possible.ConclusionIt is our opinion that FedEx and UPS were able to saturate the market, but the express delivery service was expected to continue growing, revenue volume was forecasted in 1996 to increase by 10% for the next 10 years. In our opinion the most important for allowing Airborne to survive were its focus to corporate clients that secured a steadier stream of business; to own an airport and aircrafts, getting protection from potential saturation of the suppliers; and its low cost structure already explained in this memo and show in detail in Exhibit 1. Finally, as the case explained Airborne was able to take advantage of the current industry situation of 1997, UPS was suffering a strike which had an estimated impact of 23% increase in Airborne’s revenues.Exhibit 1: Estimated cost structure comparison between FedEx and Airborne overnight letters。