Jeff Bezos, the founder of the world’s most popular e-commerce website Amazon, has faced a rough week as Tesla’s Elon Musk took over his long-held position of the world’s richest person. Heretofore, it seemed impossible to overthrow this dominant market position held by Bezos, but hey, Elon Musk is a personality that makes impossible seems possible (just like his dream of SpaceX reaching mars). With this, Amazon definitely has been brought down to the ground level competition once again.
Amazon is targeting its next plan- of -action in the air, perhaps to gain back its top position to feel on top of the world once again. The news in the trend is that Amazon has started to expand its air presence with a bid to expand its air cargo operations and delivery network.
To facilitate this plan, e-commerce major Amazon has already purchased its first fleet of planes. The shopping list held by Bezos includes 11 used Boeing 767-300 jets from the US’ Delta Air Lines and Canadian air-carrier WestJet.
Amazon already has a pre-existing air network but this is the first time it has actually acquired its own flights instead of leasing. Amazon launched its air cargo service, now called Amazon Air, in 2016, and has been leasing planes since then to deliver goods to consumers around the world.
Air cargo field is not really new for Amazon as it launched its air operations for the first time in 2016. However, the stark difference is that at that time all of its planes were leased whereas today, he has given an order to purchase them. Since the launch of its air cargo services, Amazon has invested heavily to build its growing air freight network. The company further expects to have a fleet of over 85 planes delivering goods across the globe just by the end of next year, that is, 2022.
Currently, Amazon’s air fleet comprises over 70 planes. a report published by Chicago’s DePaul University in 2019 expects this number to expand to at least 200 by 2028. The Seattle-based company has been putting in a lot of efforts to speed up its delivery, both in the air and on ground, especially in the case of its Prime service, which promises overnight and two-day shipping.
But another question one can ask her is why is Amazon purchasing planes this time instead of its older practice of procuring them on the lease?
Needless to say, Amazon has gained its world dominant position by the virtue of the magnificent service level it provides to its customers. And it has taken this step to purchase planes on the same lines to provide maximum level of satisfaction to his customers by increasing its delivery efficiency. According to the interviews given by Amazon’s heads, the combination of leased and owned planes shall help the company in facilitating quicker deliver, better management of operations, reduces long-term costs, and more efficient control systems.
Owing to the same demand, Amazon has announced a purchase of four planes from WestJet Airlines and seven from Delta Air Lines earlier this week. Sarah Rhoads, Vice President of Amazon Global Air, said in a statement, “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.”
The four planes from WestJet are expected to come under Amazon’s flight business this year itself while the other seven from Delta will take a long time until 2022. All these planes are in the process of being converted to hold cargo instead of the conventional idea of Anthropos to enter Amazon’s air cargo network.
But why is Amazon investing so much in Air cargo business? What benefits is the company seeking from this sector?
Amazon has been exploiting all means and methods to retain its status as one of the most valuable firms in the world. Expanding its business into the air delivery segment would assist the company to get an edge in its wider plans to shift its deliveries in-house and grab a strong position in the world transportation sector. However, the commerce giant has also clarified that it will continue to rely on third-party carriers to operate its new aircraft.
The development is quite significant from a macro perspective because the “purchase and not lease” transaction with respect to the air carriers hints towards the stringent long term plans the company has in this sector. Investing in the planes could turn out to be a long term cost-saving strategy if Amazon, even though the sums paid today are enormous. Clearly, with this transaction, Bezos plans at lowering overall lifetime costs, exercising greater control over the speed, and ensuring reliability and quality of service.
All this will help Amazon move a step ahead in its race of commerce activities and gaining a beneficial edge in the consumer markets across the globe. This would accelerate its Amazon’s target of cementing the name of the company as a genuine and reliable firm in the world of air freight.
According to market analysts and experts, it would be way cheaper for the company when it would handle its own logistics instead of outsourcing them.
Currently, Amazon has a strong delivery market in the United States where it deliveries over 50 per cent of its total packages. The other half of its deliveries are carried out by third-party delivery providers such as United Parcel Service Inc (UPS).
Another tangent to this development by Amazon could be the destruction of market competition in the air flight sector. Amazon has be blatantly called out for mainting a “dominant” position in whatever sector it takes up, especially e- commerce and as its air fleet continues to grow, some experts warn the already Amazon’s own delivery partners of a potential market threat. On account of the same scare, FedEx announced in 2019 that it will not be renewing its US air-delivery contract with Amazon.
But, why is Amazon investing heavily in air sector now when the air industry is facing deep losses across the world?
The air industry in almost every country is struggling to survive the harsh travel restriction posed by the governments around the world in order to contain the spread of the coronavirus pandemic. The worldwide lockdowns and domestic and international travel limitations have birthed enormous losses to the air carriers.
It is the rule of the lords that when one party is struggling the other looks out at exploiting the opportunity. In other words, a tight spot for one is an opportunity for the other.
And this is exactly what Amazon is trying to do by purchasing the planes at a time when the airline industry is struggling to stay afloat. The bad situation of the global air industry has led to a steep fall in the aircraft costs as a lot of airlines, including Delta, speed up the retirement of their aircrafts to maintain their profit and loss accounts.
Another reason for taking this step could be the massive surge in online sales that Amazon has witnessed during the pandemic as people around the world remained confined to their homes and turned to the e-commerce websites and other means to purchase products and services more than ever before.