Amazon Just Took Its Logistics Ambitions to the Next Level

Over the past four years, Amazon (NASDAQ:AMZN) has been aggressively expanding its logistics operations in an effort to cut costs and take greater control over a core part of its business. That’s become a growing threat to traditional carriers like FedEx and UPS, particularly as Amazon officially listed its shipping partners as competitors in regulatory filings starting in early 2019.

However, the e-commerce giant’s efforts thus far have entailed leasing planes from third-party cargo carriers (Atlas Air and Air Cargo Transport Services Group) to operate, while simultaneously securing warrants to acquire considerable stakes in those companies for additional optionality in case Jeff Bezos wants to swallow them whole. Amazon is now taking its strategy to the next level.

Amazon Prime Air plane flying above a city.

Image source: Amazon.

Buying instead of leasing

Amazon announced  this week that it had purchased — not leased — nearly a dozen cargo aircraft to expand its fleet. These are used Boeing 767-300 aircraft that the tech giant is buying off of airline companies Delta and WestJet that will be converted to air freighters.

Amazon bought four planes off WestJet in March and are currently being converted ahead of joining the Amazon Air network this year. The seven aircraft purchased from Delta will start flying for Amazon in 2022. The third-party carriers will continue to operate the planes.

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“Our goal is to continue delivering for customers across the U.S. in the way that they expect from Amazon, and purchasing our own aircraft is a natural next step toward that goal,” Amazon Global Air exec Sarah Rhoads said in a release. “Having a mix of both leased and owned aircraft in our growing fleet allows us to better manage our operations, which in turn helps us to keep pace in meeting our customer promises.”

Timing is everything

Global travel demand was utterly demolished in early 2020 as many countries implemented lockdowns and stay-at-home orders to combat COVID-19. Remember when oil futures went negative last April? Amazon may have been able to get a sweetheart deal on the planes from WestJet since airlines have been struggling with low fleet utilization.

Meanwhile, the crisis boosted demand for e-commerce as people shopped from the safety of their homes, and Amazon saw revenue growth accelerate throughout 2020 even as it struggled to meet that demand. Prior to the pandemic, there was a shortage of widebody aircraft that could be converted to cargo planes, notes Seattle Times aerospace reporter Dominic Gates. COVID-19 changed that imbalance awfully quick. The Delta planes have just been sitting idle in storage, according to Gates.

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That’s quite a combination of situational factors, but Amazon has now emerged even stronger than before as it looks to the skies.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.


View more information: https://www.fool.com/investing/2021/01/06/amazon-just-took-its-logistics-ambitions-to-the-ne/

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