Amazon.com, Inc. (NASDAQ: AMZN) selected Sun Country, a low-cost airline, to expand its package delivery business.
Sun Country Airlines is a small Minneappolis-based leisure carrier. The Company said on Tuesday it will start flying a fleet of 10 converted Boeing Company (NYSE: BA) 737-800 freighters in the second quarter. The move is part of Amazon’s plan announced earlier this year to expand Amazon Air with the leased single-aisle planes.
Sun Country Chief Executive Officer Jude Bricker told CNBC that the business with Amazon will help level out seasonality of leisure flying, which tends to surge in the first quarter when travelers head south.
Bricker said the deal came together last week, but he mentioned he first approached Amazon about a year ago to try and sell the Company a used plane. Bricker noted that cargo flying “wasn’t part of our plan.”
Over the next 18 months, Sun Country will add 150 pilot jobs, bringing its total to 500 to keep up with the extra flying Amazon requires.
Amazon Air also includes other cargo airlines, Atlas Air and ATSG, to fly its packages. Amazon owns warrants to buy minority stakes in both companies and has been bringing more logistics operations in house.
Moreover, in June, FedEx (NYSE: FDX) announced that it will no longer provide express shipping for Amazon.
Earlier this week, Amazon also said that its third-party sellers will no longer be allowed to use FedEx ground delivery to ship Prime packages to customers. Amazon will reportedly still allow merchants to use FedEx’s higher-end Express service for Prime orders and Ground shipping for non-prime orders.
Amazon’s decision to partner with Sun Country and ditch its partnership with FedEx highlights that Company’s initiative to operate in-house.
Last week, Morgan Stanley analysts estimated that Amazon was already delivering nearly half of its own packages in the U.S., noting that package volume has grown by 20% in the past year. Morgan Stanley estimates that Amazon Logistics is shipping at a rate of 2.5 billion packages per year compared to UPS (NYSE: UPS) rate of 4.7 billion and FedEx’s rate of 3 Billion.
Morgan Stanley’s estimates would assume that Amazon Logistics would increase its shipping rate to nearly 6.5 billion packages per year by 2022, far exceeding its estimates for UPS at 5 billion packages per year and FedEx at 3.4 billion packages per year.