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This Is An Analysis Of The Harvard Business School Case On Airborne Express. It Is A Bit Specific But Definitely Contains All Necessary Information.

1556 words - 6 pages

1)Airborne's performance from 1986-1997 can be described as dismal. Throughout the period the company managed to remain profitable every year, but they underperformed the McGahan averages. Airborne averaged 1.72% ROS (including 1997, which was an outlier for this set), 2.46% ROA, and 9.34% ROE. This was compared to the ROS, ROA, and ROE of 4.7%, 5.9%, and 12.6%, respectively. Airborne also had lower margins than its competitors, FedEx and UPS, so it can be inferred that Airborne's performance is poor not just in general but also considering the industry. It should be noted that the industry leader, FedEx, could not consistently beat the averages either, so the industry is not earning large margins to begin with. However, UPS does consistently beat the averages, so Airborne should not be entirely excused due to its industry.The strategy seems to be low-cost, broad based. Based on Exhibits 1 and 8, it is obvious that Airborne is charging lower prices than the competition. This is only half of the low-cost strategy. It would at first appear that Airborne is simply charging lower prices, but has not developed a lower cost structure because its margins are so low. However, there is evidence to support a lower cost structure as well. First of all, it would be quite difficult to have a similar cost structure and even turn a profit if one looks at the FedEx comparison in Exhibit 1. This is not the only evidence of a low cost strategy. At first glance, it appears that Airborne may not have a lower cost structure because of the size of their Depreciation cost versus revenue. Because Depreciation was the only cost that was present in the Financial Results Exhibits for all three companies, it has to serve as the number for comparison. Versus revenue size, Airborne actually was much higher than UPS, and barely lower than FedEx. It is important to consider what the cost means though. Most likely, the depreciation costs are based on depreciation of the aircraft, the major asset purchases that these companies make. If the depreciation cost is divided by the number of planes in the fleet, then Airborne appears to be paying less per plane, this could be supported by the statement that they use planes from the 60s and 70s. It would seem that the cost structure is lower in this case. Also the case mentions that Airborne is able to fill its planes to a higher capacity, meaning less costs incurred per item because the flight cost is spread out over more revenue generating packages. Also, Airborne does not invest in the technology that the others do, such as tracking, that would add to costs and also be the mark of differentiation. Airborne also uses the cheaper ground method over air to save money, another low cost method. Airborne does not engage in costly advertising campaigns. Airborne is definitely pursuing a low cost strategy, they just seem to be doing a poor job of it as far as earning similar margins. In terms of the broad versus narrow based, there may be an...

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