HwkrPlt

Didn't the FAA force UPS to stop subcontracting out their lift? What would prevent them from doing the same with Amazon?

tnkrdrvr

It was UPS wanting more control, not the FAA that caused UPS to take the airline in house. Amazon may choose to forgo that level of control in exchange for substantially lower labor costs. Amazon uses its lift differently than UPS and FEDEX. They are focused on keeping fulfillment centers stocked vs next day and 2nd day air. I’m sure they are moving some next day stuff as well, but it’s less of their focus.

If Amazon took the airline in house and the pilot group were smart in running their union, pilots should be able to successfully fight for a contract highly competitive with UPS/FEDEX. That would drive Amazon’s costs more into line with UPS/FEDEX and destroy what little competitive advantage Amazon has in the small package delivery business. Additionally, Amazon’s airline carries the millstone of all the low margin packages Amazon ships for “free”.

Immapilot

No rumor mill has Silver Airways operating them (Silver has job openings for Ft Worth). Last I checked Amazon only holds a 135 cert for their drones.

HwkrPlt

Oh ok, that makes more sense. Thanks

zerozero

Yeah, I think a super important point to realize when comparing FDX/UPS to Amazon is that Amazon doesn't run their air operation to make a PROFIT. They run it to SAVE MONEY.

Everyone who thinks Amazon is going to take over the air freight business needs to understand this important distinction.

nitefr8dog

So how would it be smart to want to destroy what little competitive advantage Amazon has in the small package delivery business if you are now "in house" and Amazon is how your employer? And that very business is the reason you are employed...hauling boxes for Amazon.

tnkrdrvr

There is plenty of room in this rapidly growing market for a smart third competitor. That competitor should be able to compete while paying competitive wages, which would drive down training costs due to pilot turnover. UPS is by far the most heavily unionized company in its market segment. It’s also the most profitable and has the highest market cap (not counting Amazon which competes in
multi Market segments). Amazon’s airfreight business currently isn’t tasked with making a profit off its customers because Amazon is simply trying to drive down its shipping costs. The company clearly could afford to pay pilots more, but why would they voluntarily do that.

nitefr8dog

Well since this is all hypothetical....my guess is it will never happen since Bezos hates unions. Really no reason to purchase headaches and winning pilots, inherenting pensions, disability claims, retirement liabilities. Never going to happen.

wjcandee

I generally agree with much of your post, but there's a misconception here (or maybe a misreading on my part).

Amazon uses Amazon Air these days primarily to make two-day deliveries from distant FCs, with either USPS or AMZL or OnTrack-type folks doing the last mile. If you were saying they use Amazon Air to move, say, a pallet of wigets from one FC to another, they don't actually do that. Every package on an Amazon Air flight is a box with a label on it that's addressed directly to the customer.

So packages leave an FC addressed to the customer, and some of them will go to UPS, some will go by ground to a Sortation Center (or AMZL last-mile location), and some will go by ground to an airplane, then come off the airplane and be mixed in with ground traffic from nearby FCs at a sortation center (or AMZL last-mile location). At the stortation center, they will be prepared for delivery to the last mile carrier, either USPS, AMZL, or the likes of OnTrack, and then delivered by Amazon-hired truck to one of those last-mile carriers. If it's going to USPS, it will usually be delivered by Amazon-hired truck right to the DDU (Direct Delivery Unit in postal-speak, meaning the local post office nearest to destination). If it's going to AMZL, it will go to by Amazon-hired truck to the last-mile node nearest to the destination.

So the air stuff goes into the mix and comfortably makes a two-day window. That is, unless there's an IROP, from which Amazon's air network really doesn't have an easy ability to recover. You can't put a late 2nd-day package in with the overnight stuff to make the guaranteed deadline the way UPS and FedEx can, because there is no overnight stuff. So if the plane is cancelled or way late, the package is delayed. Given the current limitations at the central CVG sort (about to be mitigated by the new facility opening), Amazon is really limited to second-day delivery by its own air network. Also, for further distances from each destination air node, there's no way to make an overnight delivery by Amazon Air. For closer stuff, it frankly should be possible, depending on the timing of the sort complexes. (Remember, CVG was operating at the DHL facility at a time that DHL was not using it for overnight, although some of the hub-bypassing air flights (currently more than half of Amazon Air's flights) could conceivably be scheduled to make an overnight connection.)

My own feeling is that after CVG is up and running smoothly, more flights can and will be timed to meet a next-day window. Also, the prop planes that Silver is going to operate almost-assuredly are coming aboard in part with an eye towards making an overnight window possible once the packages arrive at the jet stations. Otherwise, they could just throw the stuff on a truck if they were aiming for a two-day window..

Long-term, Amazon is going to try to shift a lot of Prime from a two-day delivery expectation to a one-day. Much of what there is of that is currently accomplished by truck from a nearby DC, or by shipping it a longer distance by UPS. Amazon Air will likely play a significant role in making more one-day service possible where the product isn't at an overnight-truckable DC.

GoodRide

Awesome post. What are your thoughts on Amazon’s new multichannel fulfillment partnership announcement with BigCommerce, and Amazon Air’s role in that? To me it looks like Amazon is looking to turn their highly expensive logistics operation into a revenue stream. I imagine that efficient air ops becomes even more important when you’re inducting freight from a 3rd party on one side of the country that could be destined for the other side in short order (Amazon is said to be offering as quick as one day delivery). Could they be looking to subsidize their air operation by moving 3rd party freight?