Airborne, Inc.

founded: 1968 as airborne freight corp.

Contact Information:

headquarters: 3101 western ave.
seattle, wa 98111 phone: (206)285-4600 fax: (206)281-1444 toll free: (800)247-2676 url: http://www.airborne.com

OVERVIEW

The third-largest airfreight express delivery operation in the United States, behind UPS and FedEx, Airborne, Inc. is a Fortune 500 company with more than $3 billion in annual sales. The firm's Airborne Express unit specializes in overnight deliveries to large corporations. Another subsidiary, ABX Air, oversees Airborne's fleet of 120 airplanes and 15,000 trucks, as well as the firm's Wilmington, Ohio-based package sorting terminal. Along with operating ten regional hubs in the United States, Airborne offers its shipping services at more than 300 facilities serving more than 200 countries.

COMPANY FINANCES

Sales at Airborne fell from $3.276 billion to $3.211 billion in 2001. The firm posted a $19.5 million loss that year. In fact, profits had steadily declined since 1998, when they reached their peak at $137.3 million. While Airborne did achieve meager sales gains in both 1999 and 2000, this modest growth paled in comparison to that realized by rivals such as FedEx, UPS, and Yellow, thanks to the booming North American economy. Airborne's stock performance reflected its struggles. After reaching a high of $42.88 per share in 1998, stock prices dropped consistently for the next three years. In 2001, stock ranged from a low of $7.00 per share to a high of $15.08 per share.

ANALYSTS' OPINIONS

Of concern to many analysts in the early 2000s was the fact that Airborne had not seen significant sales growth in the economic boom years of 1999 and 2000. Some pointed to this as an indication that Airborne had failed to identify the key growth markets in its industry, such as Internet-based logistics, which is essentially the use of Internet technology to coordinate all aspects of freight shipping, from ordering and pick-up to payment and delivery. While the firm had held a reputation as a leader in logistics for many years, some analysts believed that its adoption of Internet technology was too slow. In addition, many felt that the firm suffered from its failure to diversify its services to the extent its competitors had. With the express shipping services of rivals like UPS and FedEx growing faster than Airborne, the firm found itself losing market share in the late 1990s and early 2000s. To make matters worse, due to its lack of diversification, the firm did not have many other business segments on which to rely.

In late 2000, when Airborne reshuffled its management team and revealed plans to diversify into ground shipping services, the firm's outlook appeared to improve. Stock recommendations in 2001 and 2002 were mixed. Some analysts believed that the lower prices of Airborne stock would prove to be a bargain as Airborne was a company on the road to recovery; others were less certain that the move into ground shipping, where competition between the likes of UPS and FedEx was already fierce, would prove lucrative for the firm.

HISTORY

Airborne Freight Corp. was created in 1968 when Seattle, Washington-based Pacific Air Freight Inc., an air freight forwarder founded in 1947, merged with another freight forwarding firm, San Francisco, California-based Airborne. The young air freight company began to consider a move into express delivery, particularly the overnight delivery of letters and small parcels, in the late 1970s. To gain entrance into this market, Airborne acquired Midwest Air Charter and an airport in Wilmington, Ohio, in 1980. Airborne was able to make such purchases thanks to the late 1970s deregulation of the airline industry, which had removed restrictions on who could buy commercial airplanes and airports. Eventually, the firm focused the bulk of its efforts on express air-freight operations.

Initially, breaking into the express air delivery industry proved difficult due to the strength of industry giant Federal Express. Aggressive marketing campaigns that focused on the speed with which Airborne could make deliveries helped the firm eventually establish itself as a viable contender. Sales reached $630 million in 1987. By then, Airborne had become the third largest air freight company in the United States, with a 12 percent share of the industry. (However, its sales continued to pale in comparison to the $8.6 billion in revenues achieved by UPS and the $3.2 billion in revenues secured by Federal Express.) Also that year, IBM Corp. awarded Airborne a three-year contract to handle all of its express air mail under 150 pounds in weight. Airborne purchased Sky Courier, a same day delivery service provider, in 1988. Shipments increased by 40 percent the following year, despite intense competition throughout the industry.

FAST FACTS: About Airborne, Inc.

Ownership: Airborne, Inc. is a publicly owned company traded on the New York Stock Exchange.

Ticker Symbol: ABF

Officers: Robert S. Cline, Chmn., 64, 2001 base salary $675,000; Robert G. Brazier, VChmn., 64, 2001 base salary $575,000; Carl Donaway, Pres. and CEO, 50, 2001 base salary $500,000; Lanny H. Michael, EVP and CFO, 50, 2001 base salary $275,000

Employees: 32,000

Principal Subsidiary Companies: Airborne, Inc. is the parent company of three main subsidiaries: Airborne Express, Inc.; ABX Air, Inc.; and Sky Courier, Inc.

Chief Competitors: The two largest rivals of Airborne, Inc. are FedEx Corp. and United Parcel Service (UPS) Inc. The firm also competes with airlines like Delta and US Airways, trucking companies like American Freightways and Yellow Corp., and the U.S. Postal Service.

When FedEx began to target many of Airborne's corporate customers in 1991, Airborne responded by reducing its rates. Sales that year reached $1 billion for the first time. Airborne Logistics Services was created in 1993 to offer warehousing and distribution services to companies. Growth continued throughout the 1990s, fueled by things like the well-publicized UPS strike in 1997. That year, Airborne saw its stock prices triple. Record profits boosted Airborne into the ranks of the Fortune 500 in 1998. The following year, the U.S. Postal Service and Airborne jointly created Airborne@home as a delivery service for online merchants shipping products to customers' homes.

The firm's performance began a slow, steady decline in the late 1990s. A management shakeup in 2000 resulted in the promotion of Carl Donaway to the position of president. In an effort to boost its ability to compete with increasingly diversified firms like FedEx, Airborne launched ground service in 2001. The firm also upgraded its Web site. Sluggish demand and declining market share prompted the lay off of 640 workers, roughly 2.5 percent of Airborne's workforce, that year.

STRATEGY

When Airborne first entered the express air freight industry in the early 1980s, it faced competition from established giant Federal Express, as well as from a host of smaller rivals, such as Emery Air Freight and Purolator Courier Corp. To gain a foothold in the industry, Airborne launched an aggressive marketing strategy that included television advertisements. The ads were designed to not only showcase Airborne's delivery speed, but also to portray Federal Express as an impersonal corporate giant. The strategy proved successful, and Airborne saw its number of shipments, as well as its sales and profits, grow throughout the mid-1980s. Shipments grew from 5.7 million packages in 1982 to 35.0 million packages in 1987. By then, Airborne had secured 12 percent of the U.S. express air market.

Also important to Airborne's success in the 1980s was its strategy of focusing on offering speedy air freight services to corporate clients. By narrowing its focus to corporations, Airborne was able to tailor its services to meet the specific needs of corporate clients. For example, the firm offered modestly priced pickup on demand services, which meant that businesses could call Airborne to pick up a package whenever it was ready, rather that attempting to have a package ready for a prescheduled pickup. To win contracts, the firm also offered special discounts to certain firms. As a result, companies like IBM Corp. began to negotiate long-term delivery service contracts with Airborne. While this tight focus served the firm well throughout the remainder of the decade and into the early 1990s, by the late 1990s, it had become clear to management that a new strategy was needed. Several new managers were hired in 2000, and they began to work on turning around what was by then a struggling firm. Key elements of the firm's new strategy included launching ground shipping services and increasing its use of Internet technology, both of which happened in 2001. What impact these initiatives will have on the firm's performance remains to be seen.

INFLUENCES

Perhaps most influential in Airborne's decision to diversify into three- and four-day ground shipping was the fact that Airborne's express delivery service had actually started to grow more slowly than the express services of FedEx and UPS, both of which were focused on offering increasingly comprehensive delivery services. The firm's narrow focus had once allowed it to outperform rivals in the next-day and two-day delivery market segments; however, the lack of diversification had become a liability by the late 1990s. According to an August 2000 article in Air Cargo World, "The carrier's strict adherence to basic overnight and second-day service has helped keep costs down, a key factor as it seeks to come in below UPS on the rate scale. But the operational restrictions also keep Airborne in something of a straightjacket as it tries to respond to market conditions."

CURRENT TRENDS

The trend of intermodalism, whereby air freight services work in conjunction with trains, boats, and trucks to complete deliveries, became increasingly important to all types of fright companies, including Airborne, in the late 1990s. Using other modes of transportation to complete deliveries (typically via alliances with other shipping companies) has allowed Airborne, Inc. to expand internationally. For example, the firm uses ocean freight operations to complete many of its international deliveries. Like many other freight companies, Airborne also continues to focus on using Internet technology to improve internal operations and to extend a variety of services to its clients. In November 2001, Airborne added two online shipping systems to its Web site: ShipEx-change, which allows small businesses and individuals to manage their shipping needs online; and Corporate-Exchange, which allows several individuals within a corporation to complete various shipping tasks, depending on their level of clearance.

PRODUCTS

While overnight and two-day services remain Airborne's largest revenue generators, the firm also offers same-day and next-flight-out services via its Sky Courier subsidiary. Airborne@Home offers business-to-resident delivery services. Logistics services include warehousing, distribution, time-specific distribution, and product retrieval. International services include customs clearance and ocean freight. In addition, new three- and four-day ground delivery services were launched in April 2001.

FLOWERS AT THE ROOT OF AIRBORNE

Airborne's main predecessor company, Airborne Freight of California, was founded in 1946 in San Francisco as the Airborne Flower Traffic Association of California. Its original purpose was to transport, via air, fresh flowers from the Hawaiian Islands to California for sale in the mainland states.

CHRONOLOGY: Key Dates for Airborne, Inc.

1968:

Airborne of California and Pacific Air Freight merge to form Airborne Freight Corp.

1980:

Airborne begins offering express air delivery services

1987:

IBM Corp. awards Airborne a three-year contract to handle all of its express air mail under 150 pounds in weight

1988:

Airborne purchases same day delivery service provider Sky Courier

1991:

Sales reach $1 billion

1998:

Airborne becomes a Fortune 500 company

2001:

Airborne begins offering ground delivery services

GLOBAL PRESENCE

International expansion intensified at Airborne in the early 1990s. For example, Airborne and two Japanese firms, Mitsui and Panther Express, created Airborne Express Japan in 1990. Airborne maintained a 40 percent stake in its Japanese subsidiary. Within a few years, Airborne had become the fourth-largest Japanese air freight carrier. IBM merged its international operations with those of Airborne in 1993. The firm also began to make use of ocean freight carriers, a less expensive alternative for international shipping, in 1994; in fact, Airborne was the first express service to offer ocean shipping. By the mid-1990s, offices in Australia, New Zealand, and the United Kingdom were in operation. The firm also had forged alliances with established air freight carriers in Canada and Thailand. Airborne had extended its reach to nearly 90 percent of the major world markets. In 2001, international deliveries accounted for 11 percent of total sales, and more than 300 shipping facilities operated in roughly 200 countries.

SOURCES OF INFORMATION

Bibliography

"airborne freight corp." international directory of company histories. detroit: gale group, 1992.

airborne, inc. home page, 2002. available at http://www.airborne.com.

"airborne reports fourth quarter and year-end 2000 results." pr newswire, 1 february 2001.

"airborne reports fourth quarter and year-end 2001 results." pr newswire, 1 february 2002.

gille, john. "seattle-based airborne notes net loss of $19.5 million for 2001." fortune, 2 february 2002. available from http://www.fortune.com.

page, paul. "getting airborne." air cargo world, august 2000.

For an annual report:

on the internet at: http://www.airborne.com

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. airborne, inc.'s primary sics are:

4213 trucking, except local

4731 arrangement of transportation of freight and cargo

6719 holding companies, not elsewhere classified

also investigate companies by their north american industry classification system codes, also known as naics codes. airborne, inc.'s primary naics codes are:

488510 freight transportation arrangement

492110 couriers

551112 offices of other holding companies