Airborne Express


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Airborne Express

Executive Summary
Airborne Express is an air-express transportation company that provides delivery of small packages and documents throughout the United States and to and from many foreign countries.

Statement of Purpose
To identify the issues and problems that the company is facing and how the company incorporates into its business strategy the major trends that concerns air delivery business.
To give alternative courses of action and to recommend the best alternative to improve the company’s operations.

Statement of Problem
Airborne Express ranked third place in the 2002 U.S. air express industry with nine percent (9%) of the market and it has difficulties catching up with its larger rivals, FedEx and UPS which has 26% and 53% of the market respectively.

Alternative Courses of Action
1. Focus and continue developing the deferred and ground delivery services as there is a shift towards these kinds of services from overnight package services.
2. Continue to have strategic partnership and alliances with foreign agents to serve the international market.
3. Corporate accounts should still be the main target.
4. Lease out a portion of their airport facilities.

Analytical Tools
1. Porter’s Five Forces Model of Attractiveness
2. SWOT Analysis

Recommendation
A switch from premium overnight services to lower – margin deferred services and ground delivery services is an advantage to Airborne Express. With existing assets including trucks, tracking systems, regional hubs and sorting facilities, they only need minor initial investments to develop fully these kinds of services. They should use these assets wisely and effectively.

Conclusion
Airborne should strengthen and continually improve its services domestically, since it gives larger revenues, then strengthen its alliances internationally, so as to serve the demands of the international market. To add on its profitability, Airborne should lease out a portion of the airport facilities to other airlines, so that it could have other source of income to compensate the maintenance costs of the airport.

Methods of Analysis

1. Porter’s Five Forces Model of Attractiveness

a. The threat of new entrants into the industry
- Operating an air - express transportation industry requires large capital investments, and therefore it can impede the entry of new firms into the industry. For one, Airborne has already its own set of aircrafts and even operate its own airport, and it would be hard for a new firm to compete with this.
- The company does not spend much on advertising; its brand

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identity among customers would be their disadvantage and consumers might find other firms which they are more familiar with, through the ads they see on television or other forms of advertising which new entrants can do, enter into a new industry with much advertising and promotion.

b. Bargaining power of buyers
- Since Airborne’s main target are the corporate accounts, then their bargaining power are much higher compared to infrequent users, demanding substantial discounts. Because of this, the industry’s profitability is lower.

c. Bargaining power of suppliers
- Since Airborne provides services which might be crucial to some, like those who need to send packages and other documents to any part of the world, then its bargaining power is likely to be high. Examples are those infrequent users. Airborne can charge higher prices to them compared to what they can charge to corporate customers.

d. Nature of rivalry within the Industry
- At first, there maybe an intense competition between air-express transportation companies, but over time, Airborne cannot keep up with its larger rivals, FedEx and UPS. Clearly, these two companies are the industry leaders with large percentages of the market. Though, there are numerous competitors, others such as DHL Airways, and Consolidated Freightways are just small players in the industry.

e. Threat of substitutes
- The emergence of e-mails posts a threat to air-express transportation companies. Since e-mails are way cheaper than delivering your packages to Airborne or any other similar company, it could lower the profitability in this industry.

2. SWOT Analysis

Strengths

• It operates it owns airport and has it own aircrafts. It also handles almost all of its fleet repairs reducing maintenance costs.
• Developed C- containers which are smaller and less expensive.
• Information systems such as LIBRA II, FOCUS and EDI improving customer service.
• High- volume of corporate accounts which allows the company to reduce costs.
• Strategic alliances with foreign agent to serve international market.
• Incentive pay system of the sales force to boost performance.
• Organizational structure is as flat as possible allowing free flow of ideas within the hierarchy.

Weaknesses

• Advertising is inadequate resulting to lack of brand name recognition.
• Dependent on other carriers for international delivery since it does not fly its own aircraft overseas.

Opportunities

• Wide-bodied aircrafts like the Boeing 767 – 200 were purchased for larger capacity that would lead to greater operating efficiencies.
• Ground Delivery Services and Deferred services are the major trends nowadays.
• Demand in the international market.

Threats

• Airborne Express still can’t compete with the 10:30 am guaranteed delivery time by its competitors.
• Electronic - mail (e-mail) being a faster way of sending documents.
• Fluctuating fuel prices which is very important in this type of business.

APPENDICES

Horizontal Analysis

Current Year’s data (2001) – Base Year’s data (1997) x 100
Base Year’s data (1997)

Airborne Express Income Statement, 1997-2001 (in $millions)

Total revenues – Increase/ (Decrease)

= 3,211,089 - 2,912,409 x 100 = 10.25%
2,912,409

A large portion of its revenues comes from domestic delivery. It is important that the company should strengthen first and develop its domestic delivery before it can go international.

Income – Increase / (Decrease)

= 19,458 -120,072 x 100 = (116%)
120,072

Operating Expenses

= 3,223,420 – 2,687,154 x 100 = 19.96%
2,687,154

A large portion of the operating expenses in 2001 are attributed to station and ground operations and the least is attributed to sales and marketing which is one of their weaknesses. Due to inadequate advertising, there is a lack of brand recognition in the part of the consumers which is very significant.

Joint Venture

Airborne entered into joint ventures in Japan, Thailand, Malaysia, and South Africa. This would be a good strategy for Airborne Express to help them penetrate into the international markets.

The Advantages of forming a Joint Venture
 Provide companies with the opportunity to gain new capacity and expertise
 Allow companies to enter related businesses or new geographic markets or gain new technological knowledge
 access to greater resources, including specialized staff and technology
 sharing of risks with a venture partner
The Disadvantages of Joint Ventures
 It takes time and effort to build the right relationship and partnering with another business can be challenging. Problems are likely to arise if:
 The objectives of the venture are not 100 per cent clear and communicated to everyone involved.
 There is an imbalance in levels of expertise, investment or assets brought into the venture by the different partners.
 Different cultures and management styles result in poor integration and co-operation.
 The partners don't provide enough leadership and support in the early stages.
 Success in a joint venture depends on thorough research and analysis of the objectives.


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