Airborne Express - Five Forces

1503 words 7 pages
Exhibit: Five Forces Outline

1. Barriers to Entry—Medium to High for the following reasons: 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. b) Extremely large capital requirements are necessary to enter the market. Hub facilities at airports (e.g. FedEx’s hub near Dallas cost $250 million); capital expenditures for
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c) Aircraft and aircraft part suppliers are few, Boeing, Airbus, and used airplanes. Switching costs are extremely high. Boeing and Airbus have a medium bargaining power. d) The airport hubs have a very high cost; however, there are numerous airports. Although, the switching costs would be incredibly expensive and could possibly disrupt operations. The airport hubs have a medium bargaining power level. e) Labor is a supplier that has demonstrated high bargaining power. The UPS strike “immediately cost UPS $700 million in lost revenue, and it tarnished the firm’s reputation for absolutely reliable delivery.” 4. Bargaining Power of Customers—Medium to high for the following reasons: a) Among high volume business customers, rates and services were negotiable. Discounts from list prices of 50% were not uncommon. b) Brand loyalty is very low, particularly among high volume businesses. c) Buyer switching costs are extremely low, increasing bargaining power of customers. 5. Rivalry Among Existing Competitors—High for the following reasons: a) Rivalry among the top two carriers is highly competitive. Major carriers (particularly, UPS and FedEx) competed on multiple fronts, matching each other’s prices, products, and customer support. In the early 1990s, UPS and FedEx matched not only each other’s prices, but also the other’s innovations and services;


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