Airborne Express Discussion Questions

1) What market structure best describes the market for parcels in the US? What evidence can you
provide to support this assertion?
2) For FedEx & UPS. Briefly discuss how this rivalry has impacted the following for these two firms.
Make sure that you understand what these terms mean before trying to apply them! (If unsure,
start with a definition)
a. Cost structures (specifically reliance on fixed costs or variable costs?)
i. Think: are each firm’s costs (UPS, FedEx, Airborne) more heavily driven by fixed
cost or variable costs. How did the extended rivalry between FedEx & UPS make
this true?
b. Switching costs
c. Learning effects
3) The characteristics defined in #2 above created the opportunity for Airborne’s strategy to exist.
What is their strategy for survival over the years?
a. Can you diagram a Long-Run Avg. Cost function that represents the cost structure of
FedEx / UPS (they are similar) and another for Airborne on the same diagram. They
should look different and should cross. Hint: how is Airborne’s cost structure different
than the other 2? (you may use the spreadsheet I’ve posted to help if you want) – IMPT
to think about SCALE of each company
b. What type of customers does Airborne go after? Why?
c. How does 2(b) allow Airborne to go after these customers?

NOTE: Important in #3 to look at capacity %, # pickups, type of labor employed, size and volume of
Airborne’s customers. I’ve posted a spreadsheet that gets you to think through the difference between
Airborne and FedEx/UPS. You may use it to help you frame your thoughts & responses.

4) “Airborne’s strategy has worked, but it has in it the seeds for Airborne’s potential downfall.”
Outline this statement – tell me what the threat is and how Airborne’s own strategy has set it up
to be vulnerable to this.
a. Think – what happens to cost per package to Airborne as they get bigger? Relates to 3a
& 3b.
5) What two big threats are facing the US package industry in the late 1990s?
6) In view of #5 & #4, what might you as manager of Airborne do to survive longer? For instance,
would you consider buying RPS – why or why not? How would you handle the threats in #5?
Can you just hold on with your current strategy? Do you need to grow? Can you grow? You
don’t necessarily need to answer these specific questions but outline a strategy you may
consider going forward.

Things to consider: long term customer base, labor costs if unionize, core competencies

NOTE: Answers don’t need to be super lengthy, just thoughtful and full of economics.