Flying Low

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It is, depending on your point of view, either the first real challenge to the U.S. Postal Service's dominance of the firstclass-letter business, or a critical success and a commercial failure. Jim Hanifin -- the Boulder, Colo., businessman who created the AirLetter -- is betting that it is the former: a serious contender in the approximately $2-billion express delivery market.

Hanifin is an entrepreneur with an eclectic resume. A law school graduate, he has served as director of industrial relations for The AMF Head Division of AMF Inc., operated a clothing store, and founded a courier company specializing in transporting medical supplies. In 1981, he began studying the U.S. Postal Service's sorting procedures with an eye toward streamlining his courier operations. Instead, he came up with a plan for his own airmail delivery service.

Calling the service AirLetter, Hanifin struck a partnership deal with Western Airlines Inc. and hired a designer to make up some stamps commemorating West ern's early years of flight. Customers would buy the stamp for $1, slap it on an envelope already bearing a normal 20 cent stamp, and give the envelope to AirLetter. Hanifin's people would then sort the letters and airfreight them via Western or the most direct route to their destinations, where they would be deposited with the local post office. Second-day delivery was guaranteed -- for $1.20.

The idea seemed like a sure-fire winner. The price, after all, was about $10 to $20 below Federal Express's next day delivery service, and roughly four time. cheaper than the Post Office's Express. Mail, AirLetter's nearest competitor. In February 1982, Western AirLetter was officially launched with service from Denver to 26 major U.S. population centers. Hanifin sat back and waited for the money to start rolling in.

And waited.

For some reason, the service did not take off, despite an extended local advertising campaign. Finally, a Los Angeles research firm was brought in to find out what was going wrong. Nobody was quite prepared for the answer: The AirLetter had priced itself out of the bottom of the market. Quite simply, consumers thought the $1.20 price was too good to be true. They were, in fact, 10 times as likely to try the service at $4.25.

Since then, Western AirLetter has raised its prices and begun offering nextday delivery for $6.50. If the new price is right, Hanifin expects to be flying highIn the meantime, he can draw some consolation from the fact that he has found at least one eager market: stamp collectors. To date, they have snapped up thousands of AirLetter's three initial issues.