OM in the News: Amazon’s Plane Ambitions

Amazon is expanding its domestic air-cargo operation, adding smaller jets to its rented fleet to link its distribution centers and extend the reach of its next-day delivery service. It is aiming to reach the capacity of its free 2-day option, which is available for more than 100 million products. The firm is also 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, bringing it into direct competition, in some cases, with companies that also deliver its packages. FedEx recently said 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 is renting another 15 Boeing 737’s converted to carry cargo, in addition to 5 it’s already leasing, alongside a fleet of 40 larger planes it uses to ship packages around the U.S. It expects to have a rented fleet of 70 planes by 2021 as it takes stronger control of its own logistics operations, writes The Wall Street Journal (June 19, 2019). “These new aircraft create additional capacity for Amazon Air, building on the investment in our Prime Free One-Day program,” says Amazon’s VP. Amazon is opening three more air cargo centers this year, in Fort Worth, Texas, Wilmington, Ohio, and Rockford, Ill. A new hub at Cincinnati’s airport that can handle 100 planes is due to open in 2021.

Amazon continues 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.

Classroom discussion questions:

1. How is Amazon taking more control of its logistics operations?
2. What are the strengths and weaknesses of this approach?