Amazon air network spend exceeds $1B per year as dedicated fleet grows

In 2020, Amazon spent $61 billion on shipping, an increase of more than 61% compared to 2019. As the company has expanded its premium offering, its shipping costs have outpaced revenue growth by a factor of 1.6. The chart below shows the development of fulfillment and shipping expenses vs. North American and international revenue. Amazon Growth in Fulfillment and Shipping Costs vs. Revenue 2017 – 2020

UPS accounted for approximately 18% ($11 billion) of Amazon's total shipping spend in 2020, down from 23% in 2019. However, while Amazon has increased its relative dependency on UPS as it has expanded its own network, UPS has become more dependent on Amazon. In 2020, UPS generated 13% of its revenue with Amazon, up from 11.6% in 2019.

In addition to an ever-expanding insourced ground network, Amazon currently runs major own-controlled air networks in North America and Europe with about 160 flights per day in the U.S. and forty flights per day in Europe. At the end of 2020, Amazon operated a fleet of about eighty-three aircraft. The cost of the air network is included in its shipping spend. We estimate that its air network currently costs approximately $1.1-$1.2 billion on an annualized basis, including fuel, and consists of a mix of aircraft leases, CMI and ACMI arrangements.

Only ATSG and Sun Country provide guidance in their revenue exposure to Amazon. ATSG generated 30% (about $471 million) of its consolidated revenue with Amazon in 2020, an increase of about 41% compared to a year earlier. However, while this excludes fuel, it also includes ground. Sun Country generates approximately $580,000 per 737-800BCF aircraft in CMI flying, an effective rate of about $2,600 per hour. Total Sun Country Amazon revenue in 2020 was about $35.6 million. Overall, we estimate that its spend on 767 flying amounts to somewhere between $700-$800 million, and is likely to increase by another $300 million in the next twelve months. Its 737 networks add another $350 million in cost.

Amazon fleet outlook

The table below provides an overview of the current fleet that forms the basis of Amazon's own-controlled air network. By the end of this year, its number of active aircraft is expected to increase to around 100 from about eighty-three at the end of 2020. Sixty percent of the fleet currently consists of 767s, and the remainder of 737s. About twelve are operated in Europe, with the remainder in the U.S.

Late last year, Amazon broke with its tradition of leasing aircraft, and entered into purchase agreements for four former Westjet and seven former Delta 767-300ERs, which are expected to be converted over the coming year or so as it continues to take additional leased aircraft. Figure 2 - Current and Planned Amazon Dedicated Leased and Owned Fleet

Company Aircraft Type and Number Status Lease Expiry ATSG (CAM) Previous arrangements

-12 767-200

-8 767-300

Dec 2018 Deal

-6/4 767-300

May 2020 Deal

-1 767-300

-11 767-300

- Warrant incentives to lease up to 5 additional freighters

Total: 31 767-200/300 (End of 2020)

- 42 (end of 2021), Possible increase to 47 thereafter

Active

Delivery in 2021

Tbd

2023

2026/2027

2029/30*

2030*

2031*

Tbd

Atlas (Titan) - 1 767-300

- 10 767-300 (11 – 1 hull loss)

- 8 767-300

Total: 19 767-300 (End of 2020) Active

Active

2026

2027

2028

Gecas - 5 737-800BCF

-17 737-800BCF (2 operated in Europe)

Total: 22 737-800BCF (End of 2020) Active

Active

2029

2030/31

ASL -11 737-400 on wet lease (in Europe) Active 2025 (Agreement Expiry) Purchased Aircraft

-Ex Westjet

-Ex Delta - 4 Confirmed (All registered with NXXXAZ Registrations, various stages of conversion)

- 7 aircraft confirmed (All stored, two ferried to MEX in Jan) Inactive, Expect in Service 2021

Inactive, Expect 2 in 2021, remainder in 2022 N.A. Total (Leased and Owned) - End 2020: 83 (12 767-200, 38 767-300 and 22 737-800, 11 737-400)

- End 2021: 100 (12 767-200, 49 767-300 and 22 737-800, 11 737-400 + 6 owned 767s)

- End 2022: At least 105 (12 767-200, 49 leased 767-300, 11 owned 767s plus 737s) Source: Cargo Facts Consulting analysis of fleet data and company filings. * 3-year extension option, Current as at Mid March 2021

In the U.S., Amazon relies on a mix of operators: ATSG Group airlines ATI and ABX for 767-300 and 767-200 operations; Atlas for 767-300s; Southern Air and Sun Country for 737-800s. The arrangements with these companies are similar to one another, and Amazon owns warrants to take share ownership in these companies. So far, Amazon has exercised warrants in ATSG and Atlas. In Europe, the bulk of Amazon's flying is performed by ASL Group airlines in France and Ireland primarily with 737-400s on a wet-lease basis, and GECAS-leased 737-800s on a CMI basis.

Amazon own controlled air networks in 2021

The interactive map below provides a visual overview of Amazon’s U.S. and European networks in July 2019, June 2020, October 2020, and March 2021 (with views both before and after a major network change that was implemented in the second half of March). Each layer provides details regarding the number of flights per sector per day, as well as a breakdown of the individual operators. Interactive Map - Amazon Air Networks 2021, 2020 and 2019

Since our last update in June 2020, we have observed the ongoing expansion of Amazon’s dedicated air network, both in North America and Europe. In the U.S., the number of active cities has increased from thirty-two to thirty-eight, with the most recent additions being Toledo Express Airport (TOL) and Fairbanks International Airport (FAI) on March 17. Later this year, Amazon plans to open its 660,000-square-foot West Coast Hub at San Bernardino International Airport (SBD). It will be interesting to see the impacts on the network created by the addition of SBD given its close proximity to March Air Reserve Base (RIV) and Ontario International Airport (ONT) at 15 and 21 nautical miles away, respectively. It appears, at the time of writing, Amazon does not have any active flights to Dallas/Fort Worth International Airport (DFW).

Furthermore, the number of operated sectors has grown to 171 flights per day (more than 12%) since October 2020. During this growth period, ATI added nine sectors, Atlas six, Southern Air three, ABX one and Sun Country lost one segment. By our count, the active fleet operating in North America consisted of seventy-six units, including twelve 767-200s, forty-four 767-300s, and twenty 737-800s. We expect N503AZ to enter service with ATI in the coming weeks as the first Amazon-owned aircraft in their network. N503AZ (ex-WestJet) was recently converted by AEI in Tel Aviv (TLV) and ferried from Victorville (VCV) to Wilmington (ILN) on March 13. Amazon has also purchased ten additional 767-300 aircraft from WestJet and Delta Airlines, which are currently in various states of conversion at VCV, MEX and TLV. We expect six of these aircraft to come online in 2021, and the remaining to enter service in the first half of 2022.

Meanwhile, Amazon’s European network has continued to see significant growth in the early part of 2021. Its dedicated European network has grown from ten to fourteen cities, and we expect to see more than forty sectors per day by summer 2021. Most flights are operated with ASL Group-owned 737-400s, with the remaining flights being operated by ASL Group with two 737-800s that Amazon has leased from GECAS.

Future network growth

One wonders what Amazon will do with all these aircraft. It appears that it is already dabbling in trans-Atlantic ops; Atlas 767-300 N1511A completed twenty-three segments between Chicago (ORD) and Amsterdam (AMS) during the month of February, prior to ferrying to Mexico City (MEX) on Feb. 24 — most likely for paint as it currently wears all-white livery. Although this trans-Atlantic flight does not link Amazon’s North American and European networks, that “bridge” may be on the horizon.

We also look to Asia as a natural progression as Amazon currently flies to Alaska and the Hawaiian Islands. Bases in Alaska and Hawaii could act as stop-off points during flights to and from Asia. Another possibility would be expansion into Latin America and the Caribbean. It appears that the 737-800s are the aircraft of choice in Amazon’s European network, and we do not foresee many — if any — 767-300s there. Of course, we are just speculating.

Aircraft utilization

In February 2021, ATI surpassed all other operators by operating 1090 flights, approximately forty per day, in Amazon’s North American Network. Atlas had the longest average flights at three hours and eighteen minutes per flight, likely due to its operations at the periphery of Amazon’s Network service to the Hawaiian Islands and Anchorage. Sun Country had the highest utilization rates, with an average of seven hours and seventeen minutes per aircraft per day.

Generally, the utilization in Amazon's 767 networks mirrors the 5.7 to six hours per day achieved by other integrators. But the utilization of its 737 networks is higher than typical integrator routings, particularly in Europe, where its network does about 3.6 sectors and just under seven hours per day.

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