5 ms·

Amazon to start air delivery network with leasing deal

29 points by antr 11y ago

saosebastiao 11y ago
This is something the carriers have known was coming for a while and I wouldn't expect it to hurt their bottom line much (and it might end up being a benefit). When you cater to dominant customers like Amazon, you end up operating around their peaks and valleys. Amazon buys so much that if the carriers wanted to keep up with Amazon's demands, they would probably suffer utilization hits whenever Amazon is not peaking. If Amazon assumes the risks of volume variation, they gain a lot of scheduling flexibility (flying later at night, etc.), and they can better level load their volumes across their carriers and themselves. This is a win for both Amazon and their carriers.
- brianobush 11y ago
  In the short term, this is probably true. However, can you see a future where Amazon increases their own fleet to the point where it hurts other carriers? I certainly do.
  - saosebastiao 11y ago
    I think in the long term you can expect to see Amazon directly competing with other carriers in retail parcel delivery, so yes. However, the carriers have a very difficult job, and contrary to popular belief, they are phenomenally cost efficient given the constraints placed on them. Amazon may try to undercut on price, but given the cash flows and margins of large carriers, any significant pricing discount would introduce negative cash flows that could cripple even a behemoth like Amazon. And by significant, I mean anything more than 2-3% off of the rates that UPS or FedEx charges. Given the constraints and inherent difficulty of the business, I would imagine the impact would be no different than if DHL tried to re-enter the US market.
    - JBReefer 11y ago
      UPS is a miracle in motion, go to a bit distribution center sometime.
      - hamburglar 11y ago
        I heard back in January that amazon was hiring up ups managers like crazy and forming a partnership with ATSG. Would have been a good time to buy ATSG, which has jumped quite a bit on the news.
- sib 11y ago
  That's an interesting idea. I would have assumed that Amazon would be planning to use its own assets for "baseload" demand (to use power generation analogy) and rely on third parties to deal with spikes in demand. Doing so would result in a higher variance in 3rd-party utilization compared to its mean. That is, if Amazon currently needs 50 planes' worth of capacity on average from third parties with a standard deviation of 10 planes' worth, and they decide to acquire 30 planes of their own, then it would mean residual demand for third parties would be 20 planes on average but still a standard deviation of 10 planes' worth.
- bobbles 11y ago
  Maybe this is where a hyperloop can shine? Direct point to point transport at massive speeds, without people in the cargo to go and get themselves killed
6stringmerc 11y ago
I think it'll be very interesting to see the compensation that Amazon gives its pilots. Personally I like well paid, well rested pilots as a general principle. It's also a good thing from an insurance/liability perspective. A 767 coming down into anywhere populated is a rather scary proposition, as we're probably all too aware.
- cylinder 11y ago
  Pretty sure these are wet leases and the lessor provides crew.
- 1812Overture 11y ago
  It's Amazon so I assume they'll be independent contractors being horribly over-worked for minimal compensation.
- Gustomaximus 11y ago
  While pay is between Amazon and the pilots, I would hope the 'well rested' component is covered by regulation to stop companies pushing pilots to fatigue levels. I'm surprised we've not seen drone cargo flights already. It would be a good learning transition before this moves to passenger flights. It cant be too far off.
ChrisBland 11y ago
As someone who worked in retail distribution in a past life, I wonder if this is simply an easier way to move product between their distributions centers. If goods land on the east coast they can fly them straight to the west coast and vice versa. It also gives them ability to rebalance their DC inventory as the planes would just be going point to point. The details they didn't release which have me wondering, who is going to handle the loading / unloading? Are they planning on building their own sites at airfields or are they going to contract that out?
- brianwawok 11y ago
  Planes are what 100x the price of trucks per pound? For just rebalancing send trucks. Or more realistically make a new order for the other coast.
  - ac29 11y ago
    Based on shipping stuff via overnight air and normal ground frequently, I'd guess the difference is more like 5-10x.
throwaway_xx9 11y ago
US Regional/Charter airline pilots used to be horribly underpaid until the new ATP experience requirements in 2015. Go Airlines just signed a new pilot contract for $60k/year for pilots and $35k for co-pilots.
- Someone1234 11y ago
  > Go Airlines just signed a new pilot contract for $60k/year for pilots and $35k for co-pilots. That's still insanely low given how much pilot training costs. I've heard figures over $35,000 to go from unqualified to a commercial pilot, and that is if you shop around and look for some free flight hours. It could easily exceed $40K is you're in a rush.
  - crystalmace 11y ago
    It's even more expensive to become a commercial helicopter pilot, closer to $100,000. And this is just in North America. In Japan, I believe the going rate for commercial pilot training is somewhere around ¥3,000,000
  - wohlfea 11y ago
    When you think about it, it's not really that much different in salary/investment than say your average liberal arts degree. What's crazy to me is how low the pay is for someone who is directly responsible for other people's lives.
  - nikdaheratik 11y ago
    The reason why it works is because so many civilian pilots were first trained by the military.

29 points by antr 11y ago

This is something the carriers have known was coming for a while and I wouldn't expect it to hurt their bottom line much (and it might end up being a benefit). When you cater to dominant customers like Amazon, you end up operating around their peaks and valleys. Amazon buys so much that if the carriers wanted to keep up with Amazon's demands, they would probably suffer utilization hits whenever Amazon is not peaking. If Amazon assumes the risks of volume variation, they gain a lot of scheduling flexibility (flying later at night, etc.), and they can better level load their volumes across their carriers and themselves. This is a win for both Amazon and their carriers.

brianobush 11y ago
In the short term, this is probably true. However, can you see a future where Amazon increases their own fleet to the point where it hurts other carriers? I certainly do.
- saosebastiao 11y ago
  I think in the long term you can expect to see Amazon directly competing with other carriers in retail parcel delivery, so yes. However, the carriers have a very difficult job, and contrary to popular belief, they are phenomenally cost efficient given the constraints placed on them. Amazon may try to undercut on price, but given the cash flows and margins of large carriers, any significant pricing discount would introduce negative cash flows that could cripple even a behemoth like Amazon. And by significant, I mean anything more than 2-3% off of the rates that UPS or FedEx charges. Given the constraints and inherent difficulty of the business, I would imagine the impact would be no different than if DHL tried to re-enter the US market.
  - JBReefer 11y ago
    UPS is a miracle in motion, go to a bit distribution center sometime.
    - hamburglar 11y ago
      I heard back in January that amazon was hiring up ups managers like crazy and forming a partnership with ATSG. Would have been a good time to buy ATSG, which has jumped quite a bit on the news.
sib 11y ago
That's an interesting idea. I would have assumed that Amazon would be planning to use its own assets for "baseload" demand (to use power generation analogy) and rely on third parties to deal with spikes in demand. Doing so would result in a higher variance in 3rd-party utilization compared to its mean. That is, if Amazon currently needs 50 planes' worth of capacity on average from third parties with a standard deviation of 10 planes' worth, and they decide to acquire 30 planes of their own, then it would mean residual demand for third parties would be 20 planes on average but still a standard deviation of 10 planes' worth.
bobbles 11y ago
Maybe this is where a hyperloop can shine? Direct point to point transport at massive speeds, without people in the cargo to go and get themselves killed

6stringmerc 11y ago

I think it'll be very interesting to see the compensation that Amazon gives its pilots. Personally I like well paid, well rested pilots as a general principle. It's also a good thing from an insurance/liability perspective. A 767 coming down into anywhere populated is a rather scary proposition, as we're probably all too aware.

cylinder 11y ago
Pretty sure these are wet leases and the lessor provides crew.
1812Overture 11y ago
It's Amazon so I assume they'll be independent contractors being horribly over-worked for minimal compensation.
Gustomaximus 11y ago
While pay is between Amazon and the pilots, I would hope the 'well rested' component is covered by regulation to stop companies pushing pilots to fatigue levels. I'm surprised we've not seen drone cargo flights already. It would be a good learning transition before this moves to passenger flights. It cant be too far off.

ChrisBland 11y ago

As someone who worked in retail distribution in a past life, I wonder if this is simply an easier way to move product between their distributions centers. If goods land on the east coast they can fly them straight to the west coast and vice versa. It also gives them ability to rebalance their DC inventory as the planes would just be going point to point. The details they didn't release which have me wondering, who is going to handle the loading / unloading? Are they planning on building their own sites at airfields or are they going to contract that out?

brianwawok 11y ago
Planes are what 100x the price of trucks per pound? For just rebalancing send trucks. Or more realistically make a new order for the other coast.
- ac29 11y ago
  Based on shipping stuff via overnight air and normal ground frequently, I'd guess the difference is more like 5-10x.

throwaway_xx9 11y ago

US Regional/Charter airline pilots used to be horribly underpaid until the new ATP experience requirements in 2015. Go Airlines just signed a new pilot contract for $60k/year for pilots and $35k for co-pilots.

Someone1234 11y ago
> Go Airlines just signed a new pilot contract for $60k/year for pilots and $35k for co-pilots. That's still insanely low given how much pilot training costs. I've heard figures over $35,000 to go from unqualified to a commercial pilot, and that is if you shop around and look for some free flight hours. It could easily exceed $40K is you're in a rush.
- crystalmace 11y ago
  It's even more expensive to become a commercial helicopter pilot, closer to $100,000. And this is just in North America. In Japan, I believe the going rate for commercial pilot training is somewhere around ¥3,000,000
- wohlfea 11y ago
  When you think about it, it's not really that much different in salary/investment than say your average liberal arts degree. What's crazy to me is how low the pay is for someone who is directly responsible for other people's lives.
- nikdaheratik 11y ago
  The reason why it works is because so many civilian pilots were first trained by the military.