Airborne Express 3

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

United Parcel Service, a logistics company has established itself through its strong corporate culture, continuous ability to innovate, and its far-reaching global network. The company has maintained a competitive advantage over the years by implementing continuous growth strategies—the first was geographic expansion, next the early adaptation of electronic tracking technologies, and then came a series of acquisitions. Although UPS is financially strong and is able to maintain its role in the courier and delivery industry—it is vital that UPS continue to act strategically as to strive for long-term success. UPS is heavily dependent on the U.S. economy and it is important that it find greater and more profitable ventures

The industry is defined as the Domestic US Express Mail industry. This includes overnight and second day delivery. In order to assess the attractiveness of the industry, a Porters' Five Forces analysis has been conducted as follows.

The availability of substitutes is medium mainly because there aren’t a large number of substitutes out there for express mail outside of the industry. Most next day deliveries are business documents, parcels, letters, ect, not typically cargo. So substitutes could include email and faxes, both are faster and cheaper than express mailing. Depending on the nature of the business, video conferencing or the old fashion telephone could be used. If the parcel is going somewhere local maybe could use bike messengers, or just hand deliver. There are also the second tier players, like RPS, DHL and TNT, while they are still in the delivery industry; they tend to specialize in areas other than express mail. With RPS, it is second day service at 40-50% less, and a business that does a large amount of overseas or international express shipments may want to substitute with DHL or TNT, who specialize and differentiate themselves in the international market.

a) Economies of scale—the top three carriers (Federal Express, UPS, and Airborne Express) serve slightly more than 85% of the domestic express mail market. All three carriers deliver a high volume of packages, and thus, are able to spread fixed costs over more units. Also, each carrier has integrated technological systems that improved operational efficiency. In addition, intensive training programs of employees increase service and delivery efficiency.

According to a Case Study-United States Postal Service (Jan 06, 2010), retrieved from: http://www.slideshare.net/bakeursilly/usps; since 1175 when Benjamin Franklin was appointed as the first postmaster general of the United States, the agency known as the United States Postal Service (USPS) has grown to become an institution that delivers about half of the world’s mail in snow, rain, and the dark of the night. Employing about 656,000 workers and 218,684 vehicles, 36,496 total retail and delivery facilities nationwide, 599 processing facilities, 584 million pieces is the average volume per day, and a total work hour of 1,258,025 per year delivering over 200 billion items per year via air and highway.

FedEx has two major customers who consist of businesses and individual customers. These business customers have accounts with FedEx to arrive at their location to pick up packages daily or weekly. Two-thirds of FedEx’s business comes from these customers so FedEx curves their operations to satisfy this clientele. Since FedEx’s competition is trying to acquire some of this clientele they have begun to operate and market to this clientele more effectively. Individual customers are also in FedEx’s internal environment. These customers represent one-third of their business. With increased competition from competitors FedEx has marketed to this market substantially. They have created boxes that are prepaid for shipment as long as the contents fit into the box. This has effectively increased business amongst individual customers for FedEx.

Studying FedEx, UPS and their competitive relationship in the decade from mid - 80's to mid - 90's gives a good insight for the companies' and industry's future. The two companies have different strategic goals and are operating in the same industry but in different main markets: FedEx is working on "producing outstanding financial returns" and focuses on the overnight air market while UPS is looking for "earning reasonable profit" and its core business is the two-day ground delivery. However, by 1981, the two companies started to have a strong sense

In the US Express Mail industry, the buyers fit into two segments: businesses and individuals. Express Mail has become the industry standard in some industries such as banking, consulting and financial services since the items inside the package had a high ratio of value to weight. Businesses needed to be able to track the packages and be assured that it arrives on time. That being said, businesses were often high-volume buyers since the shipping managers identified which firm to deal with and concentrate the high-volume of shipments to that firm for a particular project or for the time being. Sales representatives from the firms had to negotiate with stingy shipping managers who sometimes demanded the upwards of 50% or more discounts. The existence of many large volume buyers meant that the buyer power is high. Similarly, individuals also held high buyer power since the Big Three and other second-tier postal services offered largely undifferentiated services.

The evolution of the express mail industry had become a quick on-time shipping and delivery of packages. The service had become effective, reliable, and prompt, which most of the top companies could deliver on these guaranteed promises 96-99% of the time. But, delivery services were only a portion of the services being offered to their customers. Carriers had mastered information management that they shared with their customers. Customers were now able to fill out labels, track the route of their package, and assisted in billing using both via carrier provided software or the Internet.

By 1976, at a volume of 1,300 packages per day, FedEx’s Courier Pack service was only fulfilling one tenth of a percent of the “emergency rush” market, which totaled 870,000 packages delivered per day. By comparison, at 13,400 deliveries per day, the company’s Priority One “emergency rush” service accounted for one percent of the total market. Clearly both services have potential to gain more share of the rush delivery market, but the Courier Pack’s untapped potential is nearly limitless. Surely, the remaining 98 percent or so of customers using competing services for emergency rush delivery, including Emery Air Freight and USPS Express Service, are not familiar with Fed Ex’s less expensive, and more consistent Courier Pack service, and would switch brands with heightened awareness gained through careful marketing.

In 2008, the senior management team at Continental Airlines, commanded by Lawrence Kellner, the Chairman and Chief Executive Officer, convened a special meeting to discuss the firm’s latest quarterly financial results. A bleak situation lay before them. Continental had incurred an operating loss of $71 million dollars—its second consecutive quarterly earnings decline that year. Likewise, passenger volume was significantly down, dropping by nearly 5 percent from the prior year’s quarter. Continental’s senior management needed to act swiftly to reverse this trend and return to profitability.

David Neeleman, CEO of JetBlue Airways and his management team have realized that JetBlue is still making profit despite the many challenges facing the airline industry after the September 11th 2001 terrorist attacks. Despite these positive returns; JetBlue plans on raising capital through an Initial Public Offering (IPO) to support its aggressive growth and to also offset portfolio losses to their venture capital

This analysis investigates the management policies of the two primary competitors of the Air Delivery & Freight Services industry. I use ratio analysis to peek under the covers of profitability to understand how management, investment and financial management activities impact the overall performance of FedEx and UPS and study how the ratios change over time for FedEx.

From the humble financial portfolio as a crop dusting outfit in the mid twentieth century, to the multi-billion dollar portfolio of a major airline in the twenty first century, Delta Air Lines has risen as a successful business. The airline industry is directly affected by outside economic conditions and is also cyclical in nature. These factors make it very difficult for airlines to make predictions to stay financially afloat. Delta has ridden the bumpy path of the last twenty years and managed to survive. In the past twenty years there has been many events that