Flight Industry Conditions Just Right For Amazon Air Takeoff, Analyst Says

Amazon.com, Inc. AMZN announced Wednesday it launched gateway operations at Austin and San Juan airports, will open regional air hubs in Lakeland this summer and San Bernardino next year, and will expand its cargo aircraft fleet from 68 to 80 by 2021.

Amazon will lease 12 Boeing Inc BA aircrafts from Air Transport Services Group.

According to one analyst team, the efforts are well timed.

The Rating

Bank of America analysts Justin Post and Michael McGovern maintained a Buy rating on Amazon and $2,600 price target.

The Thesis

The COVID-19 pandemic has shaken supply and demand in such a way as to cut the cost of cargo aircraft leasing and improve cargo yields.

“With aircraft values possibly depressed for several years (after 9/11, aircraft values did not regain pre-crisis values until 2005), and cargo yields increasing, it is likely cost-effective for AMZN to expand its fleet this year,” Post and McGovern wrote in a note.

With 80 operational aircraft, Amazon will improve its competitive position next to FedEx Corporation FDX and United Parcel Service, Inc. UPS.

“If Amazon is operating this entire fleet by 2021, we estimate its cargo aircraft combine to a max structural payload of about 9 million pounds, which represents about 20% of the 50 million-pound payload we estimate for FDX's fleet of trunk aircraft (excluding smaller Cessna aircraft) and 25% max payload we estimate for UPS' fleet,” the analysts wrote.

Based on academic projections, they expect Amazon to continue investing in its fleet and expand to 200 aircraft units over the next eight years.

AMZN Price Action

At time of publication, Amazon traded up marginally around $2,487. Boeing was up 3.6%.

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