Amazon’s (NASDQ: AMZN) private cargo airline will nearly double the number of flights operated in a year by this summer as it rapidly grows its fleet, laying the groundwork for significant expansion of next-day delivery options and potentially hauling third-party shipments, researchers at DePaul University say.
Amazon’s air network has evolved to the point that in the next 18 months it could begin shipping packages of goods not purchased on the Amazon platform, the authors predict in a report released Tuesday. An independent third-party logistics service would put the company in direct competition with FedEx (NYSE: FDX), UPS (NYSE: UPS) and the U.S. Postal Service.
Amazon Air expanded daily flight activity 15% since August and is positioned to make similar gains in the first half of 2021. The airline regularly makes an average of 140 daily flights, and that activity is estimated to grow to more than 160 by June, compared to 85 in May 2020, according to the analysis of data from flight tracking websites.
The developments come as Amazon experiences explosive growth in online sales, which helped push up the company’s fourth-quarter revenue by 42% to $125 billion and operating income by $3 billion. The coronavirus pandemic accelerated e-commerce spending nationwide by 40%, according to various estimates, as people shifted spending from services to goods they could enjoy at home or outdoors while safely distanced.
Amazon, which outsources flying and maintenance to third-party carriers, has more than 70 aircraft in its active fleet and is expected to operate more than 80 by next year, according to figures from Amazon. The bulk of the fleet consists of midsize Boeing 767 aircraft.
Amazon Air leases all of its aircraft but recently purchased 11 Boeing 767 passenger planes from Delta Air Lines (NYSE: DAL) and WestJet that will be converted into freighters and operated by partners such as ABX Air and Atlas Air (NASDQ: AAWW).
Amazon says four of those planes will enter service this year.
The DePaul University report, “Primed & Positioned,” anticipates seven or eight planes registered to Amazon, including aircraft leased from ABX Air’s parent, Air Transport Services Group (NASDQ: ATSG), will begin flying this year.
Some of the new flight activity comes from Amazon Air’s fledgling intra-Europe network, which gives it a significant presence on two continents. The airline began operating last fall from a new base at Leipzig/Halle Airport with two Amazon-registered Boeing 737-800 aircraft operated by ASL Ireland Airlines. It previously had only contracted with carriers using planes it didn’t control. The DePaul team, led by Professor Joseph Schwieterman, said a third plane leased to ASL will likely enter service soon.
ASL, which also provides service for FedEx and UPS, operates about eight daily flights on midrange routes connecting seven cities in France, Germany, Spain and Italy. Cologne, Germany, receives four flights per day and the report said it will likely become an Amazon hub too. And Amazon will probably spread its network to the Republic of Ireland, the U.K., the Benelux countries and Eastern Europe as its fleet size grows.
The European aircraft work longer than their U.S.-based counterparts, typically completing four daily flight segments a day, according to the report.
Even with the new growth, Amazon Air’s domestic operations are small compared to FedEx Express and UPS — only about 15% as large as UPS’. And Amazon’s international air operations, which include semi-regular flights between the U.S. and Amsterdam, are dwarfed by those of FedEx, UPS and DHL (DXE: DPW). But those express carriers aren’t growing at Amazon’s rate, according to the DePaul report.
Amazon’s network remains highly decentralized, with point-to-point service between numerous non hub cities. Kentucky’s Cincinnati/Northern Kentucky International Airport (CVG), California’s Ontario International Airport and Illinois’ Chicago Rockford International Airport are its most heavily served points.
New logistics opportunities
Amazon Air’s growing flight operations are complemented by an aggressive expansion of airport locations. The company is expected to begin operating at a new $1.5 billion national air hub at CVG, where it currently shares space with DHL Express, by late summer. It also has a large operation at nearby Wilmington Air Park (ILN) in Ohio, home to contractor ATSG.
The new Cincinnati/Northern Kentucky hub will reportedly have capacity to handle up to 200 flights per day when fully built out.
The DePaul report said upsizing of the hubs and the concentration of retail distribution centers in the region give Amazon Air the ability to move into third-party delivery.
Amazon Air’s flights from CVG and Wilmington reach airports within a five-hour drive of the vast majority of the U.S. population, with key gaps filled by DHL’s nonstop flights from CVG. The flight network makes next-day delivery of packages originating in the Ohio Valley a viable option, the researchers said.
“The growing density of flight operations and warehouses around these airports, and the investments being made by other retailers and logistic providers in this area, give Amazon newfound capacity to provide expedited business-to-consumer deliveries for purchases not made on the Amazon platform. Flights from CVG and ILN already connect Amazon to most of the US population, and much more expansion appears imminent,” the authors said.
In the past six months, the two airports have added three flights and cumulatively handle 43 flights per day, or about 30% of the airline’s total. The report predicted CVG will increase activity from 28 flights per day to about 50 per day by year’s end.
About 18 million square feet of logistics-related industrial space has entered the market in the Cincinnati metropolitan area since 2017, according to developer ProLogis. A 750,000-square-foot distribution center for Bed Bath & Beyond is under construction in Monroe, Ohio, about midway between the two airports, and Wayfair already has a major presence at CVG.
“CVG and Wilmington are almost ideally situated for domestic package movements due to the centrality of their location, each within a 10-hour truck trip of much of the country’s population. We expect both airports to remain focal points, as both have Amazon fulfillment centers near them and enjoy synergy with the DHL international hub at CVG, UPS Worldport in Louisville, Kentucky, and Ohio’s Columbus Rickenbacker International Airport, a major hub for international apparel shipments,” the report said.
The UPS global hub in Louisville is a 90-minute drive by truck from CVG.
Amazon would likely focus on retailers’ outbound shipments to consumers rather than try to replicate the door-to-door service of competitors, the researchers added.
The online retailer was beginning to ramp up one-day delivery for its Prime customers in select markets when the COVID pandemic hit, forcing it to scale back. Amazon is gradually resuming its one-day service guarantee, which it defines as starting at the point an item is packed at the fulfillment center. The more nodes and aircraft in the system the greater its ability to add cities to the program.
A next-day delivery network would also be valuable to third-party retailers selling on different platforms.
Analysts say it is only a matter of time before Amazon begins offering logistics services to the general business community. Fulfillment By Amazon (FBA) is the retailer’s third-party logistics service that provides e-commerce warehousing, order picking and packing, shipping, and customer services for sellers on Amazon’s website. But the bundled service is expensive and restrictive.
Amazon watchers expect the company to soon offer third-party logistics services for hire, decoupled from FBA branding requirements.
In May, Amazon rolled out a third-party logistics service in the U.K., and Morgan Stanley recently forecast that Amazon will launch a third-party delivery service in the U.S. once the pandemic eases.
Other key observations and forecasts in the DePaul report, include:
- Amazon introducing significant flight operations at Southern California’s San Bernardino International Airport, Amazon’s new western hub, with some activity possibly shifting from Ontario International within the next few months. A new facility being built for Amazon is scheduled to open early this year.
- Expansion to airports that fill gaps in Amazon’s network, such as possible service to Upstate New York, the Carolinas and Salt Lake City, which will give the logistics operation improved coverage in areas where ground travel times from its airports are presently six hours or more.
- Amazon Air is putting more emphasis on major commercial airports that have extensive passenger traffic, a shift from its focus on cargo-centric airports. The airline has markedly expanded at Portland International, Phoenix Sky Harbor International, San Francisco International, Seattle-Tacoma International and Tampa International airports in recent months.
- Amazon Air has reduced trans-Pacific flights and appears to be relying almost entirely on charters and other contractual arrangements to support its supply chain across the Pacific. Offseason transoceanic international flying has been largely reduced to a semi-regular round trip between Amsterdam and Chicago. The best use of the airline’s fleet is to support rapid inventory and package movement between its warehouses and fulfillment centers. For shipments across the oceans linking manufacturers to its warehouses, conventional cargo airlines using larger airplanes operated by other carriers appear better suited for the task.
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