Amazon launches Prime Air

Discussion
Image: Video still, amazon.com
Aug 08, 2016
Tom Ryan

On Friday at Seattle’s SeaFair Air Show, Amazon.com launched its first-ever, branded cargo plane, the Amazon One.

Painted with “Prime Air” on its fuselage, the Boeing 767-300 is operated by Atlas Air.

“Creating an air transportation network is expanding our capacity to ensure great delivery speeds for our Prime members for years to come,” said Dave Clark, Amazon’s SVP of worldwide operations, in a statement. “I cannot imagine a better way to celebrate the inaugural flight than in our hometown at Seafair alongside Amazon employees and Seattle residents.”

The airplane is one of 40 that Amazon has agreed to lease through air cargo partners Atlas Air and ATSG in a development first announced in May. It currently has dedicated airplanes flying daily out of its air hub in Wilmington, OH. The rest of the cargo jets are expected to be flying within two years.

Amazon has said the cargo planes are designed to supplement and not replace FedEx, UPS and other third-party carriers it has long used, but they’ve fueled speculation that the e-tailer may eventually build out a full-fledged transportation network itself to reduce fulfillment costs, speed deliveries and gain greater control over the last mile.

With many other investments in its logistical infrastructure and cheap to free shipping to support its Prime subscription service, Amazon’s shipping costs continue to rise faster than sales. In its second quarter, shipping costs rose 44 percent versus 31 percent revenue growth.

In its statement, Amazon noted that it has launched several initiatives in the last year “to ensure great delivery speeds and supply chain capacity for its customers.” These include Amazon Flex, a mobile app that allows individuals to sign-up, be vetted and begin delivering for Amazon. It also introduced a network of 4,000 trailers and has invested in advanced robotics and other technology to speed packing and sorting at its facilities.

Expanding its logistics reach is also working as a branding vehicle for Prime. Along with the Prime-Air branded plane, the 4,000 tractor-trailers are all branded with Amazon Prime in large letters. The new jet’s tail also sports Amazon’s smile logo.

DISCUSSION QUESTIONS: What do you think introducing Prime Air branded planes says about Amazon’s ambitions? Do you see a branding benefit for Amazon from its own internal delivery network?

Braintrust
"Investing in air cargo capacity is another example of how multi-dimensional Amazon’s business plan is."
"Planes, trains, trucks and boats … all part of Amazon’s master strategy to master the ecosystem and logistics..."
"...a stark reminder that everywhere you turn, there is Amazon’s omnipresence."

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17 Comments on "Amazon launches Prime Air"

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Phil Rubin
BrainTrust
1 year 4 months ago

Amazon continues to lead and develop its own path forward as it grows and expands its dominance. Investing in air cargo capacity is another example of how multi-dimensional Amazon’s business plan is and likewise an additional pillar in support of a bullish case for its business.

Tom Redd
Guest

This is a marketing move. A great place to get attention and soon offer shipping for anything. For real retail, The Limited and many other retailers did this back in the ’80s. So for people that are not Millennials or new to retail, airplanes, jets, etc. are not a new thing in retail. What is new is that Amazon’s PR team pushes it like it is so, so new. They were not born yet when Wexner was doing it …

Chris Petersen, PhD.
BrainTrust
Planes, trains, trucks and boats … all part of Amazon’s master strategy to master the ecosystem and logistics to provide levels of direct customer service that will be unattainable by new-entry players. The only thing missing are cars. Amazon will not need cars if drones are approved to fly, and delivery by droids on the ground is perhaps more likely in many areas for the last mile. Amazon’s strategy goes well beyond Prime planes in the U.S. Amazon is setting up distribution and pickup facilities where products are manufactured. Amazon will be able to pick up goods off of the… Read more »
Dick Seesel
BrainTrust

It’s not just a PR move but also a legitimate way for Amazon to verticalize its logistics operations — and to keep ratcheting up its execution vs. its competitors. I’ll be interested to see if Amazon decides to expand the Prime Air concept to offer an alternative to the other carriers, like UPS and FedEx.

Ian Percy
BrainTrust

if the numbers work for this strategy, good for Amazon. But as a “branding” strategy? I don’t think so. Not any more than seeing a Trump plane makes Trump more endearing. An overemphasis on branding that does not add actual value soon wears thin. Like people who wear their clothes inside-out so you can see the label.

People don’t care how their stuff arrived at the door as long as the right stuff arrives when expected.

Lyle Bunn (Ph.D. Hon)
BrainTrust

“Love people, use money and never confuse the two.” — this sound advice is too often forgotten in business. Prime Air is an expression of this. Improved control over service and the shipping costs allows the firm to be more competitive and nimble.

“Pishaw!” to those who say, “but it’s not their core business and it will distract their attention.” In fact, getting products into peoples’ hands at a fair, reasonable cost that everybody can afford is exactly their business, and Prime Air supports this business goal.

Ross Ely
Guest

The Prime Air planes demonstrate that Amazon is serious about taking more control of its delivery capability and freight costs. The free and next-day shipping features are a critical benefit of Amazon Prime membership, and Amazon is ensuring that it can manage the costs of providing these services going forward. The branding is a nice-to-have secondary benefit and serves to reinforce Amazon’s growing strength in its transportation infrastructure.

Lee Kent
BrainTrust

I’m no expert on this, however I can’t see how branding your own planes helps reduce the shipping costs. Is that going to make me buy more from Amazon and, even if it does, isn’t that just going to drive the shipping costs up even more? Hmmm.

I don’t get this one. And that’s my 2 cents.

Doug Garnett
BrainTrust
I certainly don’t have inside information. But the primary reason to vertically integrate is to try to eke out more profit from the system. Since we know Amazon struggles to find profit in its fundamental retail competitive business, my guess is that this is one more sign that Amazon has bigger problems with its general retail business than they’ll ever admit. (Otherwise it doesn’t really make sense as a strategic move.) This is consistent with Amazon’s building a high-profit cloud business and just might give us true insight into their business: They can’t make money in retail. But if they… Read more »
Patricia Vekich Waldron
BrainTrust
Patricia Vekich Waldron
Retail and Marketing Expert; Former IBM Executive
1 year 4 months ago

While the branding of the planes is pure marketing, Amazon’s commitment to developing an end-to-end supply chain is serious news. When Amazon puts their mind to it they’ve proven they can very quickly own the business.

Ed Rosenbaum
BrainTrust

I read this as a huge marketing plan. Can we be witnessing Amazon building their own internal FedEx or UPS systems? I wish I was an “insider” in one of their boardrooms to hear and see the genius marketers creating the master plan.

Shep Hyken
BrainTrust

Amazon.com is the total package. From merchandising to pricing to customer service to logistics, etc. This is just one more piece of the logistics puzzle to give Amazon the opportunity to control 100 percent of the process. As Amazon mentions in the article, this may not replace FedEx, UPS, etc., but it at least gives Amazon a choice or even a backup if needed.

Naomi K. Shapiro
BrainTrust

As others have noted, it’s putting things vertically and, contrary to disclaimers, it will probably ultimately be a BIG disruptor for other services such as FedEx, UPS and other third-party carriers. As for branding, I just changed my mind as I picture planes, trains, trucks, etc., with the Prime logo, a stark reminder that everywhere you turn, there is Amazon’s omnipresence.

Peter Charness
BrainTrust

As to branding, few people will ever see the “prime” label on a plane, so that’s not the ticket. Vertical integration of everything to reduce cost and increase speed, I think that gets a big “maybe.” Can Amazon really manage air infrastructure at as low a cost as FedEx? Big difference being a marginal load and cost on a FedEx plane vs owning the whole thing yourself.

Lee Peterson
BrainTrust

Free Shipping! (Just kidding.) To me, it’s another excellent PR move by a company that just doesn’t stop messaging the fact that they’re innovative and are willing to challenge ALL the norms. Why not planes? Why not Echo? Why not drones? Why not TV? Why not stores?

That’s why their HQ building is named “Day One” — new retail thinking at its finest, mirroring the thinking of the new customer: Digital Natives.

Kai Clarke
BrainTrust

Amazon’s control and demand for world-class logistics, combined with their immense growing demand from consumers, requires the lowest logistics costs throughout their transportation stream. Purchasing and controlling their own fleet of planes seems to be a logical first step for Amazon as it controls its own costs, rather than outsources these through 3rd parties. Clearly, the next step would be for Amazon to start offering freight and logistics services of their own to businesses and consumers.

Adrien Nussenbaum
BrainTrust
Adrien Nussenbaum
U.S. CEO and co-founder, Mirakl
1 year 4 months ago

Prime Air is likely a hedge bet to protect again cost increases from FedEx and/or UPS. But it is also part of Amazon’s strategy to ensure that customers are always satisfied — for many that means fast delivery times. It makes sense for Amazon to keep Prime members happy because Prime customers are among the best and most loyal around. If Prime customers were not getting great service, they would migrate toward other providers. Amazon can afford to experiment because its third-party marketplace keeps the company profitable, allowing for innovation in areas like logistics.

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Braintrust
"Investing in air cargo capacity is another example of how multi-dimensional Amazon’s business plan is."
"Planes, trains, trucks and boats … all part of Amazon’s master strategy to master the ecosystem and logistics..."
"...a stark reminder that everywhere you turn, there is Amazon’s omnipresence."

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