Amazon Airlines? Maybe, but maybe not.

  • David Harris
  • February 4, 2016
  • 0

Amazon AirlinesAmazon seems to be saying “maybe not,” but in a way that is open to a wide variety of interpretation.

We have covered Amazon’s move into the air freight business extensively. You can read our most recent analysis here, but the condensed version is that, in September 2015, Amazon set up a trial overnight express network in the US (working with Air Transport Services Group) and in Europe (working with Schenker and ASL).

Further, Cargo Facts learned from several sources that Amazon was investigating the possibility of setting up its own-controlled air network in the US, based on the acquisition of about twenty 767 freighters.

Of course this led to many questions.

  • Was Amazon just planning to use its own resources in the Christmas peak season? Its regular shipping partners – UPS, FedEx, and the US Postal Service – had struggled in the past to keep up with peak demand, so some kind of supplemental service made sense.
  • Was Amazon planning to launch a permanent delivery network, including a hub-and-spoke air operation and sortation center? Amazon spends about $5 billion annually on logistics, so setting up its own delivery system, particularly in the US, could easily make sense.
  • Was Amazon planning to not only set up its own delivery network, but offer it to others on a third-party basis in direct competition to UPS and FedEx? Well, why not? Amazon’s biggest revenue source is reportedly not online sales of merchandise, but rather the sale of space in its cloud – a service it originally started in order to manage its own IT needs. If it could leverage cloud storage from in-house to third-party status, why not do the same with express delivery?

But neither Amazon nor anyone involved in the trials was willing to comment, and the question of Amazon’s intentions remained unanswered.

However, in a recent call with analysts to discuss fourth-quarter results, Amazon’s CFO Brian Olsavsky addressed the issue, saying: “What we’ve found is in order to serve – properly serve our customers at peak, we’ve needed to add more of our own logistics to supplement our existing partners. That’s not meant to replace them. And those carriers are just not – no longer able to handle all of our capacity that we need at peak. They have been and continue to be great partners. And we look forward to working with them in the future.”

What are we to make of this? Mr. Olsavsky said Amazon “needed to add more of our own logistics to supplement our existing partners.” He did not mention air freight specifically, but we assume his statement to be an acknowledgement that yes, Amazon had set up the trial air network. He also said that Amazon looked forward to working with its existing transportation partners in the future, but he did not say to what extent or for how long.

And when asked a more specific follow-up question about whether, in the longer term, Amazon had an ambition to provide capacity to other companies, Mr. Olsavsky chose not to comment.

So we are still left with the fundamental question – what is Amazon’s long-term intent regarding an own-controlled air network – unanswered.

 

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