Airborne Express in 2002 Essay Example
Airborne Express in 2002 Essay Example

Airborne Express in 2002 Essay Example

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  • Pages: 8 (1942 words)
  • Published: September 17, 2017
  • Type: Article
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Our group's objective is to determine the air express industry's soundness of Airborne Express's generic strategy.

In order to determine its distinctive competency, the company's strengths and weaknesses are analyzed alongside the opportunities and threats it faces. The main problem the group aims to address is identifying a strategy that can be implemented by Airborne Express for both domestic and international operations, with consideration given to its strategic alliances and diversification of services, including logistics. Leasing out a portion of their airport to private aircraft or competitors is among the viable alternative courses of action to resolve some of Airborne's dilemmas.

According to the case, Airborne has experienced a decline in their package prices per customer location. The reason behind this decline is the intense competition and the implementation of new methods for sending packages, res


ulting in a decrease in profits. One way to offset these falling rates is by leasing. For other airlines, this could be an alternative to building an airport, which generally costs over $120 million.

Airborne could construct another runway using the revenue generated from the leases, segregating the leased area from their business. However, attracting additional financial resources from competitors may not be easy. Taking over DHL can serve as a favorable strategy for Airborne's expansion in the global market, since they lack sufficient finances. The merger would grant the merged entity access to additional facilities worldwide. Consequently, the combined company would compete with FedEx and UPS, potentially reaching a larger market share, especially in overseas regions. Although the new leadership may feel apprehensive about this step due to their ego, Airborne has experienced rewarding outcomes in past mergers.

It is

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possible that adopting a new culture, specifically that of DHL, may require significant changes and adjustments. However, this issue can be resolved by providing Airborne with a grace period to prepare for the merger. Additionally, pursuing international strategic alliances such as the one with Mitsui and Tonami can enable Airborne to expand its services globally and receive funding for aircraft financing. This partnership can also serve as a means for Airborne to enter new geographical markets.

Although Airborne doesn't need a large investment, it still depends on renting space from other carriers. To overcome this limitation, Airborne should create its own fleet of airplanes and form partnerships with compatible organizations to reach the ideal level of operation. The company's Free Trade Zone (FTZ) could function as their primary service platform. Nevertheless, they should be careful because the reliability of partner companies will heavily influence the success of any alliance; any problems faced by these entities could have negative consequences in a chain reaction.

Airborne can improve the quality of its GDS and SDS services by taking advantage of the increase in demand for affordable delivery options, resulting in a shift from premium express to deferred services. This strategy sets Airborne apart from its competitors but may be imitated. The key is maintaining low prices without losses. Conducting a SWOT analysis has revealed that Airborne's strengths include cost advantages achieved through economies of scale and aircraft maintenance, as well as its generic strategy of focusing on costs to attract large corporate customers within the industry.

The hindrance to Airborne's global expansion is due to their insufficient capital. Their market share is under threat from intense competition with FedEx

and UPS, as well as from factors such as the bargaining power of buyers, rising fuel costs, and weak industry volume growth. To analyze the industry's attractiveness, Porter's Five Forces Model was used. The analysis reveals that entry to the air express industry is challenging due to high barriers such as large capital requirements, economies of scale, and strong brand identity. Price wars initiated by UPS and FedEx create intense rivalry, posing a danger for new entrants. Both customers and suppliers (especially in the case of corporate accounts) hold greater bargaining power over Airborne due to industry conditions and higher fuel costs.

Despite the existence of substitutes such as faxes and emails, the delivery of original copies reduces the significance of these threats. However, the air express industry is unfavorable and only beneficial for existing giants and players in the industry. The group utilized financial ratio analysis and examined the company's income statement data from 1997 to 2001, along with shipment revenue and volume statistics, workforce, and productivity statistics to determine its operational efficiency. Results of trend analysis revealed that profitability has decreased due to rising operating costs and declining volume growth of shipments. While facing high bargaining power from corporate accounts, the company generates more revenue per shipment from these accounts than other services. Lastly, employee productivity increased in 2001.

Although the number of employees decreased in 2001, the company's total benefits paid to them increased. This suggests that the compensation plan should be reviewed to improve productivity. Furthermore, due to the growing demand for global air express service, Airborne faces competition in the high-volume accounts market. To survive in the airline industry, it is crucial

for Airborne to develop a strategy to retain their corporate accounts. The proposed solution is a merger with DHL.

The advantages of Airborne and DHL are complementary: while Airborne has limited access to the international market, which DHL excels in, DHL struggles with penetrating the US market, where Airborne thrives. Combining these two companies would create a favorable scenario for both parties to compete head-to-head with UPS and FedEx, potentially resulting in increased market share. The opportunities for the global market are significant and cannot be ignored. Joining forces with DHL would provide Airborne an excellent foundation to pursue such activity. Ultimately, the transportation industry is poised for a new direction in the near future.

The globalization of the world has made distance less relevant, and time zones now define us more accurately. This reality may result in significant mergers that split the transportation market into larger shares. The decision for Airborne boils down to accepting the challenge of globalization or continuing to compete in the competitive US domestic market. To extend their competitive strategy (Strength VS Opportunities), Airborne could consider: 1. Expanding inventory management and logistics services in the global market, 2. Forging additional alliances with foreign countries, and 3.

One way for global corporations to advertise and offer their services is by creating a strong competitive strategy that takes into account their weaknesses and opportunities. This could involve agreeing to a merger with DHL, as well as advertising their newly acquired planes to establish a trademark.

3. Use the profits from leasing old airplanes to upgrade the new ones, and 4. Secure funds from a bank for global expansion.

Encourage the GDS further and expand their aircraft

operations globally.

Sustaining a competitive strategy involves focusing on strengths and threats. This can be achieved through a variety of methods such as maintaining flexible time and conducting additional research to minimize fleet repairs.

Three strategies to enhance business operations include acquiring additional corporate accounts, leasing airports to competitors or other companies, and improving SDS and GDS services.

In terms of addressing weakness versus threats, there are two possible actions: 1) conceding to corporate clients and maintaining discounted rates, and 2) selling surplus aircraft. When considering the industry analysis, the risk of new competitors entering the air express market is high due to significant barriers to entry.

Creating a network and supporting infrastructure requires a significant amount of capital investment. While there is no brand loyalty in the industry, the major players are renowned for their dependability. It would require considerable time for a new entrant to establish the same level of reliability. The hub-and-spoke model, utilized in this industry, can be implemented by new competitors, eliminating any cost advantage. Additionally, economies of scale will not benefit new competitors due to their lower initial volume. However, switching costs are not significant in this industry.

The industry is dominated by a few major players, making it an oligopoly. There are often price wars between UPS and FedEx, with other companies following suit or dropping out. The industry has high exit barriers.

Investments in hubs, vans, jets, and other capital-intensive infrastructure have led to varying levels of bargaining power for customers in the aviation industry. While large businesses can negotiate prices with sales representatives and receive volume discounts, smaller customers must accept the prices offered to them.

Although there is intense

competition, players within the industry have the ability to switch between suppliers. However, prices offered by suppliers tend to be similar across the service band. Meanwhile, in terms of supplier bargaining power, the industry relies on fuel, planes, vans, customs, permits and other inputs. To counteract fuel hikes, companies liaise with relevant industries. Additionally, they arrange deals with customs departments to speed up the clearance process for goods and packages. Consequently, there is no significant threat from suppliers in this industry. Regarding substitute products, businesses can use alternatives like fax or telex to transmit important documents.

Using emails can serve as a cheaper option for expressing messages compared to using mail. However, when it comes to sending original documents, the possibility of substitution is constrained. Furthermore, there are only a few substitutes from other industries available.

Airborne is employing a cost-centered approach to set itself apart from competitors UPS and FedEx. Its focus is on major corporate accounts, with the aim of enhancing value-added services while minimizing service costs. Nevertheless, there exists a danger of rivals entering this market segment as well. Airborne has suffered reduced revenues resulting from customer discounts. With its financial records showing decreasing profitability over the last five years, the bulk of its earnings are derived from domestic operations.

Reduced profitability has been caused by insufficient volume growth, expensive fuel costs, and rivalry from FedEx and UPS. In the last five years, various components of the company's operating expenses have accounted for different percentages of total operating expenses. Transportation purchases made up 32.89%, station and ground operations comprised 32.47%, while flight operations and maintenance constituted 17.09%.

According to the Shipment Revenue Statistics Analysis, Airborne Express

incurs lower labor costs and generates more revenue per shipment when dealing with large corporate accounts due to its focus on high-volume clients. As a niche player, Airborne Express can significantly decrease its costs. Nevertheless, on domestic high-volume transactions, the company is only able to charge a maximum of $0.94 per pound.

Due to the significant bargaining power held by international freight customers, there was a 77% increase in transactions for 2001. Analysis of shipment volume statistics reveals that annual growth for second-day service has steadily increased from -11.80% in 1997 to 15.40% in 2001. While overnight services may account for the majority of shipments, this sector has experienced negative growth in recent years due to decreased demand resulting from the use of e-mails.

Although the company's high-volume accounts and international freight services experience slower annual growth, they exhibit more consistent shipments compared to other services. The company has the opportunity to establish an international service comparable to its domestic service due to globalization. It can work on this opportunity to retain its high-volume and international freight clients who generate higher revenue per shipment for the company. In terms of workforce and productivity statistics analysis, labor productivity measured by shipments per employee hour has remained stable around 7%-8% over the past five years. However, according to statistics, there was a decrease in productivity in 1999 which showed an improvement in 2001.

In 2001, there was a 3.74% decrease in employee hours compared to the previous year. Although total shipments growth rate decreased by 1.60%, total compensation increased, indicating that additional incentives may have contributed to the increase in productivity. It might be necessary for the company to review

its compensation plan to further boost productivity.

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