Is(n’t) it the right time for Amazon Air to launch operations in India?
It is a known fact that Amazon Air has been expanding its footprint across USA and Europe over the past couple of years. This is part of the well published Amazon strategy of ensuring order fulfilment in shortest time possible. This strategic objective requires a concerted operation of efficient air, road, and last mile modes of transportation. Amazon has successfully pioneered the 1-day guaranteed delivery across its global network which has resulted in an elevated expectation level from its customer base. To ensure that this expectation is continually met, air cargo logistics plays a crucial role.
Amazon has traditionally depended on delivery and logistics partners such as DHL, Fedex, US Air Post, etc for air cargo logistics — within the USA and elsewhere too. The past few years have seen changes in that strategy as the fleet of aircraft in the Amazon Air — the air cargo logistics vertical within Amazon Transportation System (ATS) — has continued to expand. The investment in new hubs at Cincinnati and Amsterdam bear testimony to this long-term strategy of developing a trans-continental network of cargo flights as well as serving the domestic USA market with greater speed and agility.
With a large population and geography, India presents a unique opportunity in serving its enormous customer and seller base. The Indian market has potential to expand further and therefore would necessitate expansion in the transportation network. This document presents a hypothesis that Amazon Air can benefit from entering the Indian Market through an analysis of the opportunities that exist in India and the potential impact of these opportunities for Amazon Air.
Hypothesis:
Enhanced profitability and higher degree of operational efficiency can be achieved by using Amazon Air fleet for delivery of shipments in Indian subcontinent compared to using other delivery partners for logistics services.
Limitations:
More data is required to validate this hypothesis quantitatively in Amazon Air’s context such as cost per package paid by Amazon to its service partners, percentage volume of shipments delivered by ATS compared to all shipments, delivery time metrics for longest and shortest distance shipments by service partners, etc.
Current market position of Amazon India
(Source: Various news and business publication reports)
- Number 1 e-commerce player in India
- 10 million Amazon Prime subscribers in India
- 400,000 Sellers on Amazon India platform
- 108.47 Billion INR Revenue at end of 2020
- 43% increase in 2020 revenue compared to 2019
- 5.5 Billion USD investment in Amazon India for expansion
- 900+ Fulfilment centres in India
Amazon’s Courier / Delivery ecosystem in India
It is evident that Amazon Transportation Service has built a presence in the Indian markets. But dependencies on other service partners for their delivery objectives also exist. This dependency is a cost element that can be optimised further and reduced — potentially by using Amazon Air for its air logistics capabilities.
Opportunities
Air Connectivity:
India is the 7th largest country in the world in terms of area measured in square kilometres. Connectivity and infrastructure in the country is still not as developed compared to USA, Europe, China or Japan. Therefore, shortening the delivery timelines for shipments using road and rail transport modes is not achievable. Despite having a well-developed rail network across the country, the lack of high-speed trains as well as terrain challenges significantly impairs the ability to be used for swift transport of goods. However, due to growing passenger demand, the airport infrastructure across the country has undergone enormous development. As per latest reports, the expected number of airports in India is projected to grow from 153 airports to ~200 airports by 2024. This boost in airport infrastructure is likely to create suitable opportunities to expand logistics networks to Tier 2 and 3 cities as well. The first mover advantage will lie with Amazon if it was to strategically commence Amazon Air operations in India.
Air Cargo Logistics service providers in India:
Currently, BlueDart — subsidiary of the DHL parent company — is the only dedicated Air Cargo service provider servicing Indian cities. While FedEx and DHL have inbound and outbound connectivity to international destinations, there is limited competition within India to BlueDart. The COVID pandemic has offered a boost to the air cargo sector which is evident from the uptake in cargo or freighter aircraft demand from passenger airlines like Indigo and SpiceJet. Unlike countries such as Qatar (Qatar Air Cargo), UAE (Emirates Cargo) and Luxembourg (CargoLux) amongst others, India primarily utilises the belly cargo capacity of passenger airliners to meet the air cargo demand. This creates dependency on the smooth operations of these commercial passenger airliners to maintain business continuity in the logistics value chain. This equation can be challenged by Amazon Air’s entry into the Indian markets and reducing the induced dependency on service partners.
Airport infrastructure and incentives:
Traditionally, India can be considered a laggard as far as airport infrastructure and facilities is concerned. It can be primarily attributed to the control of central and state governments in development of airports. Airports Authority of India — a public sector company governed by the Civil Aviation Ministry — has been the sole authority in development and operation of airports across India. However, in the past couple of decades, deregulation of airport development has ushered in a wave of Private Public Partnership models as well as completely privatised airports. As per latest initiatives from the Government during the annual budget announcement, 13 airports have been identified for privatisation with another 12 airports identified for privatisation in coming months. This drive towards privatisation offers opportunities to mega players like Amazon Air to select lucrative airport locations which best serve long term interests. In addition to existing infrastructure privatisation, there are ample investment opportunities in green field projects across the country. Exploiting such opportunities can provide a long-term advantage to Amazon over its competitors.
Aircraft Fleet Strategy and Operations:
Amazon Air’s growing fleet size is a cynosure of the freighter aircraft segment. The rapid procurement of assets, expansion of the network to add more routes with point-to-point connections with the Amazon hubs is a three-pronged strategy being played out in the USA market. The fleet acquisition strategy involves selection of aircraft which are best suited to freighter operations. Amazon’s strategic investment of $ 131 Million in ATSG — Air Transport Services Group — highlighted its innovative approach to fleet expansion. This move allows Amazon Air access to the aircraft, crew and operating permits of ATSG and its affiliate Atlas Air. Similarly, Amazon also roped in Southern Air and Sun Country Airlines for operating the Amazon Air brand which maintains low investment in running Amazon Air like a full-fledged airline and yet avail full benefits of having flexibility on the route network. Similar opportunities can be explored with existing airlines in India — some of which are established brands in India with pan-India infrastructure already existing. It may be worth exploring the possibility of replicating the collaboration strategy played out with Southern Air, Sun Country and Atlas Air with some viable airline partners in India as well.
Aircraft Financing and Leasing Structures:
Recent advancements in Indian Aviation Act of 1937, India is now opening its shores to aircraft leasing industry in direct competition to other markets in China, Singapore and Hong Kong. The new initiatives allow for aircraft leasing and financing companies to set up their entities in the International Financial Services Center in Gujarat, India and lease aircraft within India as well as outside of India. The financial incentives offered by the government to such companies setting up leasing platforms in India are competitive and therefore lucrative for the airlines leasing aircraft from these locally placed lessors. Amazon can also take full advantage of these initiatives by sourcing aircraft and leasing them locally from Indian financial markets. The foreign direct investments laws in India have also undergone significant change in recent times, enabling larger benefits to be harnessed. Amazon is certainly no stranger to these laws considering the enormous investments already made in various avenues. Air Cargo segment seems to be the next logical one.
Geographic proximity to Middle East and South-East Asia:
India’s geographic positioning enhances its potential as a logistics epicentre for air connectivity. On the west, the Middle East markets are within a flying range of 5 hours and to the East, the south-east Asian markets are within range of 7 hours flight time. These massive geographies can be connected adequately by Amazon Air through appropriate hub locations in India’s east and west coasts. Within India as well, the longest flight time connecting a city pair is ~3.5 hours. This enables route optimisation, fleet capacity utilisation and significant time savings if planned well. As per reports, Amazon does not have direct presence in Bangladesh, Myanmar, or Sri Lanka. Amazon shipments to these countries are currently delivered on a chargeable basis and using Amazon’s shipment partners. While the decision to continue this arrangement largely depends on the volume of the business in these countries, having Amazon Air operations in India will allow future decisions to operate to these countries as well. As an exporter of several FMCG, grocery and daily essential products to these countries, India already has business relations which e-commerce can further augment. If and when the volumes reach critical mass, Amazon Air can help in reducing costs of shipment and pass on that benefit to the customers, thereby increasing the propensity to buy — a strategy that has been central to Amazon’s success.
Conclusions
The success of Amazon Air in the USA and Europe markets has certainly proven its strategic worth by delivering agility to the entire supply chain. Considering that India has been widely regarded as a high potential market within Amazon, the importance of ensuring similar agility in the supply chain is inescapable. The ample opportunities presented by the expanding Indian market and the increasing subscriber base — customers and sellers — validate a need for Amazon Air’s consideration. It undoubtedly requires deeper analysis of the commercial, legal, political, technical and socio-economical parameters before further investment decisions are made. However, it would be steadfast for Amazon to dig deeper into these opportunities to establish the viability and execution strategy.
About the author:
Ameya Gore is an Aviation Industry veteran with successful stints at Jet Airways and Acumen Aviation. Ameya possesses subject matter expertise in Aviation Asset Management, Leasing and Financing, Valuations, Global Consulting & Advisory practice and Digital Products & Services. He has 10+ years of leadership experience having led business verticals from inception to sustainable maturity at Acumen Aviation. Ameya also has extensive experience in delivering mission critical projects in India, China, Japan, UAE, Malaysia, Singapore, Chile, Costa Rica, Ireland, USA and Ethiopia. Ameya — in his current role as Chief Technical Officer — Digital — leads the strategic development of digital products & services for the Aviation industry as well as expansion of Acumen’s client base across the world. Simultaneously, Ameya is an ISTAT Certified Aircraft Appraiser and supports the expansion of Acumen’s Aircraft Appraisal practice.
Contact Ameya at ameyagore@gmail.com or https://www.linkedin.com/in/ameyagore/.
Disclaimer:
The opinions and content contained in this article are entirely and solely the author’s. These opinions are based on research of news articles, social media content and Amazon’s public statements or information available openly in the website, blogs and press releases.
