‘Only a matter of time’ before Amazon Air comes to Europe

By Damian Brett

Amazon Air B737-800F

A report by finance bank KFW IPEX-Bank has concluded it is only a matter of time before Amazon launches its own airline in Europe.

Although reports suggests the e-commerce giant does contract operators to fly on its behalf in Europe, it has yet to go as far as launching its own-branded airline as it has in the US.

Its air capacity in Europe is mainly supplied by DHL subsidiary European Air Transport.

However, the KFW report suggest this will change as the company looks to drive down transportation costs in Europe by gaining more control over its air network.

“The frequency of flights by aircraft carrying Amazon parcels has increased considerably in recent months at the most important locations in Germany for this purpose, namely Cologne/Bonn and Leipzig/Halle airports,” the KFW report stated.

“Similar to the Cincinnati/Northern Kentucky airport in the US, the retail giant is also using DHL’s expanded distribution centre in Leipzig and is developing it into its own transport hub.

“The online retailer will continue to aggressively expand its air and land transportation network – and possibly also container line network.

“This is driven on the one hand by the online giant’s dynamic growth: sales are growing at double-digit rates in all divisions.

“On the other hand, logistics costs outside North America are too high: Amazon continues to incur operating losses in its international business because quick delivery to prime customers is too cost-intensive.

“It is therefore to be expected that the company’s own delivery and freight capacities will also be gradually expanded in Europe. It is only a matter of time when and in what form Amazon Air comes to Europe.”

The report also highlighted the savings Amazon had made by operating its own air network in the US.

Following the creation of Amazon Air, the e-commerce firm’s shipping costs increased by 27% year on year in 2018 to $27.7bn. However this is lower than the 33% increase in 2017 and 40% in 2016.

“This trend is likely to continue with the planned expansion of the fleet, as it is more cost-effective for the company to make its own deliveries,” KFW said.

“The cost savings in its own delivery operations, for example, are around 30% when compared to the use of integrators.”

It added that by moving away from the traditional supply chain and using direct gateways for direct flights, the overall process is much more efficient and all data it processes internally can be used to make further optimisations of its operations.

The report pointed out that Amazon is now the fourth largest all-cargo operator in fleet size behind DHL, UPS and FedEx. Its fleet is expected to reach 70 aircraft by 2021 and its $1.5bn Cincinnati hub will have space for 100 aircraft.

The bank also had a warning for DHL: “Amazon is putting the Bonn-based company under price pressure on the one hand, while on the other hand, the sales of the DHL express division are declining similar to the USA due to the loss of market share. And it is probably much more than the 1-2% of sales that have been officially acknowledged so far.”

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