Airborne Case Study
Harvard Business School
Airborne Express 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 2.8 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
Airborne Express 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 2.8 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