Airborne Express

Industry Analysis: In the early 1970’s, Federal Express (FedEx) pioneered the domestic

express mail industry, starting with defining the market and developing a comprehensive solution for overnight express delivery of small packages. Prior to FedEx, express deliveries flew primarily as freight in the holds of passenger airplanes managed by several airfreight forwarders. FedEx grew rapidly, reaching $1 billion revenue in 1983, and a revenue of $11.5 billion in 1997. During these years, the domestic express mail industry was mainly dominated by three firms FedEx, UPS, and Airborne Express, representing 45%, 25% and 16% share of domestic express mail industry respectively, the rest served mostly by USPS. From 1986 to 1996, the shipment volume had increased 15-20% each year, however, due to pricing pressure the total revenue had grown by 10-15% per year. During these years, due to the parcel price wars, the major firms were giving away more and more of the PIE (Potential

Industry Earnings) to the consumers, resulting in a lower revenue growth year over year in comparison to volume growth. These companies offered volume discounts to business customers and offered competitive prices to retain customers. In 1996, industry observers expected the volume to grow at 10%

each year for next 5-10 years. In August 97, a 16-day strike at UPS resulted in increased shipment volume and revenue for FedEx as well as Airborne Express. Airborne Express’s lower reliance on unionized employees gave the firm better supplier power compared to competitors. In 1996, the express mail industry generated $16-17 billion in United States. The three dominant companies routed more than 5 million packages (85% of total volume) each day with over 98% on time delivery. Much of the infrastructure and activities involved in delivering parcels were identical across competitors. The customers picked vendors based on convenience, pricing, customer service and reliability. However, customers were not...