Amazon Rents More Jets to Expand Next-Day Delivery
June 18 2019 - 5:00PM
Dow Jones News
By Doug Cameron
Amazon.com Inc. is expanding its domestic air-cargo operation,
adding smaller jets to its rented fleet in order to link its
distribution centers and extend the reach of its next-day delivery
service.
Amazon is experimenting with local collection centers, its own
delivery vans, on-demand taxis and even its own employees to speed
deliveries to consumers at a lower cost. The e-commerce giant's
experimentation is bringing it into direct competition, in some
cases, with companies that also deliver its packages. FedEx Corp.
said earlier this month that it would end its air-shipping
agreement with Amazon to concentrate on rapid delivery for other
retailers that are making more sales online.
Amazon said Tuesday that it will rent 15 Boeing Co. 737-800 jets
converted to carry cargo, in addition to a fleet of 40 larger
planes it uses to ship packages around the U.S. Amazon expects to
have a rented fleet of about 70 planes by 2021.
Earlier this year, Amazon said it would invest $800 million into
making the next-day option the free standard for its Prime members.
Amazon this month said it had made free next-day delivery available
on about 10 million products. The company is in a race with Walmart
Inc. and other big-box retailers to satisfy ever-demanding online
shoppers.
"These new aircraft create additional capacity for Amazon Air,
building on the investment in our Prime Free One-Day program," said
Dave Clark, Amazon's senior vice president of world-wide
operations.
The 737s, which will be purchased by the aircraft-leasing arm of
General Electric Co., will link 20 Amazon facilities to smaller
cities, while larger Boeing 767s take packages to bigger markets.
Amazon is opening three more air cargo centers this year, in Fort
Worth, Texas, Wilmington, Ohio and Rockford, Ill. A new hub at
Cincinnati/Northern Kentucky International Airport that can handle
100 planes is due to open in 2021.
Amazon's rapid growth has helped temper a broader slowdown in
air cargo traffic caused by simmering trade tensions. Global
e-commerce airfreight volumes are growing by 20% or more a year,
according to Atlas Air Worldwide Holdings Inc., one of two
specialist cargo companies that operate 767 freighters for Amazon.
Atlas Air suffered a fatal crash of a Boeing 767 operated for
Amazon near Houston in February, killing all three people on board.
The other is Air Transport Services Group Inc., which flies 20
Boeing 767s and plans to add at least five more this year.
Amazon's airfreight expansion has created logjams at facilities
that convert passenger planes to cargo use and pushed up the value
of secondhand planes such as the Boeing 767.
"All roads lead to Amazon," said Steve Rimmer, chief executive
of Altavair Aviation Leasing, who has been involved in the air
cargo market for 30 years.
Analysts expect Amazon to continue outsourcing its flying rather
than start an in-house carrier. The domestic industry is highly
regulated and has a history of turbulent labor relations, creating
high barriers to entry. Amazon decided in 2015 to outsource some
flying to contractors rather than rely solely on bigger players,
such as FedEx, that also carry cargo for Amazon's competitors.
The latest expansion plan carries risks for Amazon, though,
including the potential inflammation of tensions with pilots who
fly that cargo.
Pilot unions representing flight crew at Atlas Air have said
increased flying for Amazon has contributed to a personnel shortage
and deteriorating working conditions.
A strike by pilots flying for a unit of Air Transport Services
Group in 2016 delayed holiday shipments that year. Atlas has been
in contract talks with its pilots for three years, with an
arbitrator recently ordering the two sides to sit down for fresh
talks.
Write to Doug Cameron at doug.cameron@wsj.com
(END) Dow Jones Newswires
June 18, 2019 16:45 ET (20:45 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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