Consumer Products

Amazon Extends Plans to Crush FedEx

Douglas A. McIntyre

FedEx killed part of its deal to deliver goods for Amazon last week. Now, Amazon has returned the favor. It has announced it will buy more large Boeing jets for its own delivery service. As has been true in e-commerce, video streaming, consumer electronics, and cloud computing, Amazon has taken a path to aggressively batter the competition.

Amazon has ordered 15 Boeing 737-800 cargo aircraft, which will be put into service via a partnership with GE Capital Aviation Services (GECAS). The planes will operate out of 20 cities and be part of the Amazon Prime free-shipping program. Prime is one of Amazon’s core services. It has more than 100 million customers. A membership costs $119 a year and includes shipping, music and photo storage, and Amazon’s growing video-streaming service.

Dave Clark, senior vice president of worldwide operations at Amazon, defined the company’s long-term plans. “These new aircraft create additional capacity for Amazon Air, building on the investment in our Prime Free One-Day program. By 2021, Amazon Air will have a portfolio of 70 aircraft flying in our dedicated air network.” Most analysts believe that Amazon will reduce its reliance on UPS and the U.S. Post Service as well. FedEx is the first large delivery company to start severing ties, however.

Those who follow Amazon’s plans carefully, which include Wall St. analysts, its competition, and its largest customers, see the company leveraging its balance sheet and cash flow to buy and lease scores of planes. It was not that long ago that founder Jeff Bezos was viewed as a fool to take on NetFlix in streaming video and several large tech giants in the cloud computing business. Amazon has become the major rival for NetFlix and is the leader based on market share in cloud computing. It has proven it can move against entrenched competition successfully.

Amazon does not have to take a huge part of FedEx’s business to badly harm it. FedEx operates on relatively modest margins. In its last full year of financial reporting, it made $4.6 billion on revenue of $65 billion. Amazon’s latest actions show it wants to take as much of that top end as possible.

Is the Amazon move the beginning of the end for FedEx? The answer is “no.” But, it means to have its own “airforce,” which is a threat to both the growth and profitability of the air-freight carrier FedEx.