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Airborne Express

Airborne Express case study

Dor Shaish

on 30 December 2012

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Transcript of Airborne Express

Airborne Express Case Study Ben Pshedetzky
Ouriel Moses
Erez Cohen
Dor Shaish Buisness Strategy Market History Company History Entrance Barriers A vast initial investment is required.
Plain fleet
Trucks fleet
Hubs and Spokes

Airline regulations

Retaliation from dominating companies Strengths Known for high quality and good service
Many products according to cost and speed of service
Express - Next Day
SDS - Select delivery service (second day)(45%)
GDS - Ground delivery services (4%)
Prices are generally lower than those of the competition (To businesses)
Later Pick up times Strengths The Airbase is located in a 1H flight from 60% of US population

Free trade zone airport

Supply chain management

Patented C containers Weaknesses Money, Money, Money !
Affected Strategy

Arrival Times:
96% guarantee until 12:00
99% guarantee until 10:30 by competitors

Small Sales Force

Weak information systems (upgrade)

Low profit margins(58M on 3.3B ) Opportunities Merger with DHL to increase international presence.

Secondary products (inventory, supply chain)

Small B2B niche Threats Internet/Email/Fax.

Low price packages - decreasing profitability

Unionized labor force - UPS strike

UPS and FedEx offering 8AM delivery for surcharge to anyone Bargaining Power Of suppliers Own system for Planes and Vehicle repairs

Airlines renting storage facilities

Workers are not unionized - Advantage

Fuel suppliers

Airfields Bargaining Power of buyers Niche clients - B2B

High Volumes Per clients

No Loyalty VERY STRONG CUSTOMERS Big companies can come from other continents, with the needed capital : BUT ... Substitutes products or services New Technology
Fax No substitute for formal package delivery Competition 2 Main competitors :
USPS - Regulated. A lot of money
Earlier deadline
General market approach International - Joint Ventures
Signing deals with local trucking companies
Renting Airlines/Carriers storage space Growth Strategy Domestic - Get it alone
Own airfield
Own planes
Own trucking services
Self maintenance Key Success Factors (KSF) 1946 – It was founded by W.Holt as the Airborne Flower Traffic Association of California to fly fresh flowers from the state of Hawaii to the US

1968 - Merge with Pacific Air Freight and change its name to Airborne Freight Corporate. Starting operate air freight for small and large packages.

1977- Leasing airplanes and pilots from Midwest Air Charter and also use its own airport in Wilmington.

1980 – Purchase Midwest Air Charter in one package with its airport, pilots and all that is needed to operate the airport. By doing so it becomes the only company that owned an airport. Rename again itself Airborne Express

1988 – Became the first air express carrier to provide same-day delivery, through its purchase of Sky.

2003 –Airborne ground operations acquired by DHL for 1.1$ billion as one of the top 3 companies in the industry. Market Share DHL Acquisition General facts about DHL:

Owned by deutsche post (which is The largest logistic company in the world)

Has a delivery networks all around the word

420 airplane

220 countries

Over 1.5B delivery per year

Divided to 4 department (express, freight, ocean & solutions) DHL Acquisition The reasons which led Airborne to be sold to DHL:

Strong competition from UPS & FedEx

Analysts said Airborne lack the global scale and scope of its larger rivals

Weak volume growth that in 2001 was actual loss

High fuel costs

Switch from premium overnight service to lower-margin deferred service

1.05$ Billion – 18% above the market price DHL Acquisition - Cont. The reasons DHL wanted to buy Airborne:

Airborne presented 5$ million profit instead the 5$ million loss analysts expected (thanks to the new GDS – ground delivery service, the company prediction was 60K shipment a day when the actual was 92K)

DHL had small position inside the USA although the USA was the largest global shipper of express packages

Will give DHL the delivery network that it needed so much in USA DHL Acquisition - Cont.
US law prevents a foreign entity from owning more than 25% of a US airline.

2008 the time magazine rated the top 10 worst business deals and this acquisition rated in the 7th place, they say DHL deals in US lead deutsche post to 1$B loss for a year. The outcome... Market History 1. Package delivery can be done later then competitors.

2. Solely own Airport which is located within 1H flight from 60% of the US population.

3. Airport is defined as a Free Trade Zone - Stored goods does not pay import tax.

4. Located in 99 of the major airports in the U.S.

5. 71% traveled by air, 29% by trucks - 5 times cheaper in operations cost, priced the same for clients. Key Success Factors (KSF) - Cont. 6. Bought Second hand planes - stripped them and equipped with newest parts and systems - 10M instead of 40M - low maintenance

7. 2 Pilots per plain

8. Workshops to repair all plains and trucks.

9. C-containers: Patented
a. No need for 1M plain modification
b. Single person moving - no special equipment
c. Better Airplane space usage

10. Information systems connected and saved paperwork and personal Strategy: No enough money to stand against the major competitors

Targeting the B2B segment:
Tailoring routes to businesses
More pickups per point

No TV Campaigns - Working only with 460 Salesmen The Industrial Revolution (18th & 19th Century) made the shipping industry what it is today:

Land – rails, big trucks, cars, motors etc.

Sea – watercrafts, container ships etc.

Air – cargo planes

Now shipping is faster than ever before Statistics of the shipping market today-

Worldwide shipping market value of exported goods estimated for 2011 at: 18 trillion US$

At 2010 alone 115 million TEU has shipped (China 31M, USA 11M, Japan 6M)

US courier industry is a 60 billion US$ industry

86% of industry divided by the main companies (DHL, FedEx, UPS, USPS) Market History - Cont. Global market for express delivery is about 107 billion $

US express delivery market is about 51 billion $

About 10 million jobs in the US alone are related to the postal system

The U.S. Postal Service has more employees than any domestic business except Wal-Mart.

The parcel delivery market has been the fastest-growing transportation segment in the United States over the past two decades.

Express market in the US ships more than 5 million packages per day!! So we are one of the biggest player in one of the biggest markets in the world! Agenda Market History
Company History
Company KSF
Company Analysis:
Porter's 5 forces
DHL acquisition Additional Service Mainly for small B2B:

Airborne will gather stock from suppliers
Store stock in her airfield warehouses
Manage stock in warehouses
Access to stock management through the IS
Deliver stock to the target destination. Cost Differentiation
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