Amazon Air’s expansion does not pose a near-term threat to express giants FedEx and United Parcel Service (UPS), in part because the e-commerce company’s focus is on supporting its internal network rather than delivering packages to customers, a detailed Bernstein analysis concludes.

“There is limited overlap in airborne capacity over the course of a day,” Bernstein analyst David Vernon wrote in a research note based on a flight-by-flight analysis of Amazon Air and FedEx Express schedules. “Departure times are also very different. While it should be obvious that Amazon planes are flying to the same markets ... it is unlikely that Amazon is diverting volume from UPS or FedEx air networks to the in-sourced option if those planes are flying at contrasting times of the day.”

Recent comments from FedEx chairman and CEO Fred Smith lent credence to the analysis.

“We look at Amazon as a wonderful company in service and they’re a good customer of ours,” Smith said on FedEx’s 2019 second-quarter earnings call Dec. 18, 2018. “We don’t see them as a peer competitor at this point in time for many reasons.”

Chief among them: Amazon’s network strategy does not mirror the hub-and-spoke, overnight-delivery operations that FedEx and UPS have built. 

“Amazon Air’s network is set up to move inventory within the Amazon system, which is prodigious,” Smith said. “It moves not-in-stock and low-turn SKUs and forward-stocked items for their third-party customers, who can’t duplicate inventory every place. So it’s scheduled differently than FedEx or UPS’s system.”

Amazon put its 40th Boeing 767 freighter in service last month—a little more than two years after rolling out its first dedicated freighter—and recently unveiled plans to add at least 10 more, with options for further growth, in the next several years. The operator is shifting its main air-freight hub from Wilmington, Ohio, to Cincinnati/Northern Kentucky Airport, and has announced plans to build a regional air hub at Fort Worth Alliance Airport in Texas.

FedEx’s recent earnings release highlighted challenges in the carrier’s network, but they stem more from weakness in Europe as opposed to US domestic headwinds. FedEx’s average daily volume growth for the six months ended Nov. 30—the midpoint of its fiscal 2019 year—was up 3.7% year-over-year, but domestic volume increased 4.9%.

“Our volumes in the domestic networks are continuing to increase,” FedEx EVP and chief marketing and communications officer Rajesh Subramaniam said.

UPS reported a 3.4% increase in daily volume for the nine months ended Sept. 30, 2018. Domestic volumes were up 3.5%, while domestic next-day air package demand rose 4.9%.

Some analysts continue to warn of inevitable volume declines at FedEx and UPS as Amazon expands its air cargo capabilities. But Vernon believes Amazon’s internal focus will continue to complement its arrangements with its express-carrier partners rather than challenge them.

“The FedEx Express and Amazon networks offer very different levels of network depth and breadth—FedEx’s Memphis-based network touches 130 places multiple times per day whereas the Amazon Prime Air network touches 20 places and each of those places does not get daily service,” Vernon said. “As a result, we think Amazon Prime Air has a more limited commercial value proposition for expedited products shipped via FedEx or UPS and is not necessary for deferred products.”

Rather than getting products to customers overnight, Amazon is more concerned with cutting down lead times of products being sent to its fulfillment centers, Vernon added. 

“We think it is reasonable to conclude that [Amazon Air] is neither a replacement for a FedEx or UPS network nor is it a viable commercial alternative for third-party shippers,” he said.

Sean Broderick, sean.broderick@aviationweek.com