As I have noted, the core component in marginal cost in an ecommerce business is on distribution. And anyone who controls that distribution has an upper hand. The news is that Amazon has purchased many planes; it used to lease. What that implies is that Amazon is going all the way to run an end to end logistics operations, across all nexus and dimensions, from road to air, in order to deliver those packages on time and in full.
Amazon is taking delivery to new heights. For the first time ever, the e-commerce giant has purchased 11 Boeing 767-300 planes, having previously leased aircraft in the past. The move is part of an effort to beef up its cargo operations and to “supplement capacity” from carriers like UPS and FedEx. Amazon expects to have more than 85 planes in service by the end of 2022, according to Bloomberg, to “keep pace in meeting our customer promises.” Amazon is one of the companies that has flourished during the pandemic as consumers have increased online shopping exponentially. (source)
Simply, for Amazon Prime to remain a rainmaker for Amazon, it needs to deliver a new dimension of service. That way Primer membership renewal will continue to happen. Amazon has more than 150 million Prime members globally. If you take an average of $100 per member, you will get $15 billion revenue which these members pay for the privilege to shop at Amazon. That money could have cost Amazon a lot if it was to be borrowed from a bank. But here, Amazon gets that money interest-free from these members.
More so, because the members have paid this money, many of them are incentivized to shop more at Amazon, creating a virtuous circle which enables Amazon to make more money. Buying planes to keep these customers happy, through faster delivery, is a good call for Amazon.
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