Aircraft Prices, E-Commerce Conditions Are Ripe For Amazon Air, Says Bullish BofA

Amazon.com, Inc. AMZN could accelerate investment in its cargo airline operations, the coronavirus causing depressed aircraft values and rising cargo yields, according to BofA Securities.

The Amazon Analyst

Justin Post maintained a Buy rating on Amazon with an unchanged $2,600 price target. 

The Amazon Thesis

As per the Wall Street Journal, COVID-19 is reducing the cost of leasing cargo aircraft due to soft demand for wide-body aircraft and several airlines selling their older models, Post said in a Tuesday note. (See his track record here.)

While global freight demand has declined meaningfully, freight supply is even lower, sending cargo yields rising, the analyst said. Given these conditions, it may be “cost-effective for Amazon to expand its aircraft fleet sooner rather than later,” he said. 

The new Kentucky hub scheduled to open in 2021 could enable Amazon Air to expand from around 100 flights per day now to more than 200 from the hub in 2021, substantially boosting the company’s one-day delivery capabilities, Post said. 

"With strong e-commerce demand, and more attractive aircraft supply available, we anticipate an even more aggressive investment posture for Amazon Air."

AMZN Price Action

Shares of Amazon were down 0.56% at $2,423.31 at the time of publication Tuesday.

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Photo by Matti Blume via Wikimedia.