Airborne Express

Airborne Express

1) The Airborne case contains detailed information to conduct a relative cost analysis. Try to quantify Airborne’s sources of advantage. Specifically, using Exhibit 3 and information from the case, try to compare the costs of an overnight letter shipped by Airborne to one shipped by Federal Express.

a – Cost items of Airborne vs Federal Express:

Several factors related to Airborne’s low cost structure and accordingly lower pricing.

* Airborne operated their own airport, which helps them to save landing fees and gives an opportunity them to facilitate all their needs at the airport at little cost.

* By operating older aircraft and contracting up to 65% of the vans operating their ground network, asset cost and depreciation was therefore inevitably lower.

* Their drivers were not unionized and received somewhat lower hourly wages than Fedex, which translated into lower labor cost. The contracted labor cost them approximately 20 to 10% less in delivery and pick-up cost further contributing to the lower rates.

* Airborne’s overhead was more controlled with a very frugal approach to the running of the company. Marketing was not as aggressive, and less costly than Fedex. Instead, they ran a strong sales force which targeted logistics managers of high volume customers.

* Airborne was quite selective in their technology investments. In turn they did not offer all the online features as Fedex did but they ensured that some of the high volume customers had a link to Airborne’s computer system, focus, so that they could access the information they required.

* The low overhead cost was also supported by the fact that no retail outlets were operated, which supported the low overhead and in turn the lower price of overnight letters.

b- Analysis of Exhibit3:

Pickup:

* Labor (variable cost): An Airborne courier picked up and delivered more parcels per stop than a Fedex driver. According to the article, this reduces the labor...