Amazon Air’s Summer Surge - DePaul University

Amazon Air's Summer Surge

Strategic Shifts for a Retailing Giant

Chaddick Policy Brief by Joseph P. Schwieterman, Jacob Walls and Borja Gonz?lez Morgado

September 10, 2020

Our analysis of Amazon Air s summer operations indicates that the carrier

Added nine planes from May July, the most it has added over a three-month span in its history Has expanded flight activity 30%+ since April through fleet expansion and improved utilization Adheres to a point-to-point strategy, deemphasizing major hubs even more than last spring Significantly changed service patterns in the Northeast and Florida, creating several mini-hubs Continues to deemphasize international flying while adding lift to Hawaii and Puerto Rico

Amazon Air expanded rapidly during summer 2020, a period otherwise marked by sharp year-over-year declines in air-cargo traffic.1 This fully owned subsidiary of retailing giant Amazon made notable moves affecting its strategic trajectory.2

This brief offers an overview of Amazon Air e l i g ie a i between May and late August 2020. The document draws upon publicly available data from a variety of informational sources.

x Data on 1,400 takeoffs and landings of Amazon Air planes from and flightradar24 in April and September 2020.

x Information on fleet registration from various published sources, including .

x Geographic analysis of the proximity of Amazon Air airports to its 340 fulfillment centers.

The results build upon on our May 2020 Brief, showing the dynamic nature of the ca ie schedules, its differences from air-cargo integrators such as FedEx, its heavy emphasis on cargo-oriented airports with little passenger traffic, and why we believe its fleet could grow to 200 planes by 2028.

Joseph Schwieterman, Ph.D. Jacob Walls

Six findings from our new analysis stand out.

Chaddick Institute for Metropolitan Development DePaul University | Chicago, IL

chaddick@depaul.edu; 312.362.5732; chaddick.depaul.edu Cover photo credit: Chaddick Collection - JPS

Please refer to page 15 for author and research-team biographies.

Borja Gonz?lez Morgado

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Observation I. Ama on Air s addition of nine planes to its fleet between May and July 2020 the most it has added over a three-month span since its inception illustrates its continued commitment to growth. Three more planes subsequently took to the skies, bringing its present fleet to 54 planes, 29% more than at the start of May.

The nine Boeing 737 planes introduced between May and J l

hed A a Ai fleet count

upwards by 21.4% and makes this three-month period the most pronounced growth spurt, when

measured in terms of airplane additions, in its history.3 It outpaced past expansions in 2017 and 2019

when it added seven and five planes, respectively, over three-month periods. All of the nine planes

added between May and July are operated by Sun Country Airlines, one of its newest contractors. Sun

Country began flying a 10th new plane for Amazon in August. Then, this month, Southern Air and Air

Transportation International began flying Ama Ai 11th and 12th new planes of 2020. This brought

the fleet to 54, 28.5% more than in early May, when it had 42.4

Figure 1: Ama on Air s Largest Gro th Spurts Over three-month periods since inception

10 9

9

8

7

7

7 6

6

5

5

5

4

3

2

1

0

May - July April - June

July -

April - June May - July March - May

2020

2017

September

2019

2019

2017

2017

The nine planes added between May and July 2020 outpace all previous expansions over three-month periods. Not all three-month combinations are shown for periods with six or less additions. These estimates are based the airline s reported fleet in earl September and conservative assumptions of when Sun Country planes entered service in 2020 as noted in endnote 3.

Amazon Air is projected to add four additional planes soon, pushing its fleet to 58. If this occurs by December, the retailer will have added 16 planes this calendar year, tying the previous record from 2017. Such growth would give it a 38.1% expansion of its fleet in a single calendar year. This projection does not include the announced addition of more planes, mostly Boeing 767s, publicized in media reports, primarily involving Air Transport International (ATI). Details on these future additions are not

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yet listed on publically available websites.5

Analysis f A a Ai transportation role remains hindered by the lack of verifiable data on how much traffic it handles. Its status as a private carrier, coupled with the proprietary nature of its contractual relationships with companies operating its planes, makes estimating tonnage and the value of merchandise it moves speculative endeavors. Furthermore, some investment analysts with whom we have spoken have noted that a significant amount of cargo may move on planes not registered to Amazon Air, particularly on international routes. Nevertheless, our research team maintains that monitoring publicly available data about the number of planes registered by Amazon, and closely monitoring the changing utilization of those planes, is the most straightforward and verifiable way to a e he ca ie changing scale and orientation.

Observation II. Amazon Air flight activity grew from 85 flights per day on Thursday, April 23 to 108 flights on Thursday, August 20, a 27% increase. On other days of the week, its growth appears to be marginally higher, partially due to its success in utilizing its planes more intensively. These results, together with the fact that it added two more planes after we made these estimates, indicate that the company s flights ha e expanded by more than 30% since the start of April.

Between the second-to-last Thursday of April (April 23) and the second-to-last Thursday of August (August 20), daily flight activity expanded from 85 to 108, a 27.1% increase extraordinary growth considering that it comes on the heels of much previous expansion, and that global air cargo was down more than 20% in June and July.6 On Monday, August 24 and Tuesday, August 25, flight activity surged to 127 and 133 flights, respectively. Over the course of the six days we observed in August (which covered every day of the week except Sunday), Amazon Air appears to have grown roughly 28% 30% since May (although our limited data from April does not allow us to conclude this with certainty). Nevertheless, considering that a Boeing 737 and Boeing 767 were added to the fleet this month, boosting its fleet by another 4% subsequent to our counts, it is safe to conclude that its overall growth since April has well exceeded 30%, and could be up as much as a third.

Such growth has been fueled by improved

airplane utilization, which rose from 2.02 to 2.12

flights per plane per day on the successive

Thursdays evaluated, a roughly 4% improvement.

Over the six days observed in August, Amazon

averaged 2.7 flights per plane, with the 737s

being A a

kh e a e agi g fligh

per day, compared to 2.5 for 767s. (If only planes

that actually take to the skies on a particular day

are included, excluding those, for example,

undergoing maintenance, the number of flight

segments is higher.) These are both impressive

numbers considering that many planes used by The cargo door is open on an Amazon Air Boeing 737 at

air-cargo integrators make only two flights per Cincinnati CVG, adjacent to the DHL sorting center, on

day, one in each direction to a major hub. We August 5, 2020 (Chaddick collection).

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observed some Amazon planes completing five segments on the same day.

Amazon Air continues to use five primary contractors, Atlas Air, Air Transport International, Southern Air, and Sun Country Airlines (Southern Air is a subsidiary of Atlas Air). The outsourcing approach used by Amazon Air is similar to that of its over-the-road trucks and vans. It typically acquires the equipment and turns it over to subcontractors to operate it. A a contractors also handle other business, so it is not possible to determine exactly how much Amazon cargo each handles. This month, the company took the notable step of taking the delivery of the first plane it will operate in-house, reportedly without the use of contractors. Please refer the endnote section for a summary of some of the unexpected ways this place is being used.7

A a Ai ela i hi s appear unchanged since our earlier brief. Amazon has a 19.6% equity stake in ATI (parent of Air Transport Service Group). ATI is based in the airport at the Wilmington Air Park in Ohio, an Amazon mini-hub only about an hour drive from Cincinnati. Amazon Air accounts for all of Sun County f eigh e Thi T i Ci ie -based carrier is predominantly a passenger airline, giving it a less cargo-centric orientation than the other contractors.

Observation III. As a result of Amazon

Air s continuing emphasis on point-to-

point flying, the share of flights using its

Cincinnati/Northern Kentucky (CVG) hub

fell between April and August. The

share of takeoffs and landings involving

the three largest hubs similarly dropped.

We anticipate its decentralized

orientation to persist even after Amazon

takes occupancy of its massive new CVG

An Amazon Air Boing 767 at Allentown Lehigh Valley Airport, with tails of several FedEx planes in the distance, on July 15, 2020 (Chaddick Collection).

facilities next year.

Amazon Ai fligh e k i more decentralized

than it was only a few months ago. The percentage of takeoffs and landings involving its

Cincinnati/Northern Kentucky (CVG) hub dropped from 14.1% in the April sample to just 10.6% during

the six-day sample in August. The drop was even larger when focusing only on our Thursday-toThursday comparison, when it dropped from 14.1% to 10.2%. The percentage of takeoffs and landings involving its three largest hubs stood at 32.4% in April but dropped to 26.3% in August (CVG, Chicago

Rockford, and Tampa International were its three largest hubs in April. However, Ontario International

grew sufficiently to replace Tampa in the August sample). See Appendix for a full summary of these

results.

CVG is only slightly larger than several of Amazon he hubs. The Kentucky airport averaged 26 flights during the six August days observed, whereas Ontario and Chicago Rockford averaged 22.5 and 17.5 flights, respectively. On Thursday, August 20, CVG had but one more flight operation than Ontario. As noted below, however, the gap could widen he CVG facili ie e ext year.

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Figure 2: Amazon Flight Network within U.S. Mainland, August 24, 2020

Blue lines denote Boeing 767 flights; maroon lines denote Boeing 737s

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