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Explained: Why Amazon is buying planes to expand its air fleet

Amazon's bid to expand its air network points at its wider plans to shift its deliveries in-house and become a major player in the transportation sector.

By: Explained Desk | Panaji | Updated: January 11, 2021 7:31:21 am
An Amazon Prime Air cargo jet sits at Cincinnati/Northern Kentucky International Airport in Hebron, Kentucky. (Bloomberg Photo: Luke Sharrett)

In a bid to expand its air cargo operations and delivery network, e-commerce major Amazon has purchased its first fleet of planes — 11 used Boeing 767-300 jets from the US’ Delta Air Lines and Canadian air-carrier WestJet.

While the company launched its air operations in 2016, all of its planes were leased at the time. Since then, it has invested heavily to build its growing air freight network. In an interview with Bloomberg, Amazon said it expects to have a fleet of over 85 planes delivering products across the world by the end of 2022.

Why has Amazon purchased planes?

Earlier this week, Amazon announced that it had bought four planes from WestJet Airlines and seven from Delta Air Lines. “Our goal is to continue delivering for customers across the US in the way that they expect from Amazon, and purchasing our own aircraft is a natural next step toward that goal,” Sarah Rhoads, Vice President of Amazon Global Air, said in a statement.

“Having a mix of both leased and owned aircraft in our growing fleet allows us to better manage our operations, which, in turn, helps us to keep pace with meeting our customer promises.”

The planes are in the process of being converted to hold cargo instead of passengers. While the four WestJet flights will join the company’s fleet this year, the seven from Delta are expected to enter its air cargo network in 2022.

What does this mean?

The e-commerce platform’s bid to expand its air network points at its wider plans to shift its deliveries in-house and become a major player in the transportation sector. But Amazon has maintained that it will continue to rely on third-party carriers to operate its new aircraft.

“It is significant that Amazon has purchased the aircraft, as opposed to leasing carriers, as it should lead to lower overall lifetime costs, greater control over the speed, reliability and quality of service, and accelerate its aim of cementing the brand as a genuine player in the competitive world of air freight,” Logistics Manager reporter Michelle Mooney told BBC.

According to an estimate from Morgan Stanley in 2019, the online retail giant is delivering more than half of all its packages across the United States, with the other half being delivered by third-party delivery providers like United Parcel Service Inc (UPS). Handling its own logistics works out cheaper for the company than outsourcing deliveries, experts say.

As its air fleet continues to grow, however, some experts warn that the company could pose a significant threat to its delivery partners. Notably, in 2019, FedEx announced that it would not be renewing its US air-delivery contract with Amazon.

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But, why now?

Amazon purchased the planes at a time when the airline industry is struggling to stay afloat as aircraft costs plummet and ticket sales are on the decline due to travel restrictions induced by the Covid-19 pandemic. Several airlines, including Delta, have started speeding up the retirement of their aircraft to help cut costs.

Meanwhile, Amazon has witnessed a massive surge in online sales as people around the world — who were confined to their homes for much of 2020 — increasingly turned to the e-retailer to purchase products during the coronavirus pandemic, CNBC reported.

What about Amazon’s pre-existing air network?

While this is the first time the Jeff Bezos-owned company has acquired its own flights, it has been leasing planes to deliver goods to consumers around the world since 2016, when it launched its air cargo service, now called Amazon Air.

Amazon has been building up its own delivery operation, both in the air and on ground, in an effort to speed up its delivery of packages — particularly in the case of its Prime service, which promises overnight and two-day shipping.

Currently, the Seattle-based company’s air fleet comprises over 70 planes — a figure, which is expected to grow to at least 200 by 2028, according to a report published by Chicago’s DePaul University last year.

“At a time when many other airlines are downsizing due to the pandemic, Amazon’s push for faster and cheaper at-home delivery is moving ahead on an ambitious timetable,” the report stated. “Amazon Air’s robust expansion makes it one of the biggest stories in the air cargo industry in years.”

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