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Can Amazon Create an Efficient Air Operation?

By Motley Fool Staff - Jun 25, 2019 at 2:00AM

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The company has struggled to be as efficient as its rivals, and there’s a shortage of pilots. (AMZN -2.49%) has been building up its fleet of airplanes, but it may struggle to find pilots to fly them. That's because there's a shortage of qualified pilots that's only going to get worse in the coming years because of the mandatory retirement age of 65 for pilots. In addition, Amazon has struggled to operate its airplanes as efficiently as FedEx (FDX -3.04%) and UPS (UPS 0.78%).

In this segment of Industry Focus: Energy, host Nick Sciple and Motley Fool contributor Dan Kline talk Amazon and airplanes. To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on June 20, 2019.

Nick Sciple: That's been one issue with Amazon scaling up. You have to have enough pilots to fly all these planes. Particularly when you're shoving in, becoming a third player in this logistics market, you need to hire some pilots away. Amazon has struggled to build up its cargo airline. You sent me some stats, Amazon can only run 6.6 revenue air hours per day compared to around 18 for UPS and 14.5 for FedEx. That's due to crew efficiencies. Can you talk a little bit about what about bringing new pilots into this market is really causing a bottleneck in the amount of human capital you have to scale up?

Dan Kline: There's a disconnect in how you become a pilot. In order to become a pilot, you have to go to pilot training school. Then you have to put in a certain amount of flight hours working for smaller airlines before you can fly the bigger routes, the bigger planes. While you're going through that period, not only are you spending $100,000 or more on pilot school, your first few years of working, you're making a very low salary. Even though being an airline pilot for Southwest or Delta is a very good job, you make a lot of money, it takes a lot of investment to get there.

The other problem we have is that in most cases, companies want pilots -- I don't know if Amazon requires this or not -- to also have four-year degrees. So, in addition to having to go to pilot school, they also have to go to college. This is causing a huge shortage of pilots, which is going to be exacerbated by the fact that there's a mandatory retirement age for pilots at 65.

Now, honestly, the best way to solve this in the short term is make the mandatory retirement age 70 and have increased testing and licensing procedures in the five years in between there. But if you're Amazon, you're competing against maybe cushier jobs, maybe higher paying jobs, and hitting the wall of, no matter what you pay, there's simply not enough people who know how to do this.

Sciple: Yeah. Something to follow. As we see clear demand for more fulfillment services from companies like Amazon and others, to make that happen, we're going to need humans to fly these planes, at least in the near term. Maybe at some point in time, we'll have a robot that can take off and land. But at least in the near term, we're going to need to have people.

Kline: I think we could automate plane flight. I think there's such public sentiment against it. It's like the automated driving. Let's say, for every hundred accidents that would happen with human drivers, there's only one with automated drivers. It doesn't work, it has to be zero. Even if using automated planes dramatically cuts down on crashes, until they can guarantee zero, the publicity simply isn't going to work.

Amazon, the first thing they have to do, is get more efficient. You talked about how many fewer working hours they get. That's a practice of time. The more time they do it, the more they're going to refine their process. The bigger they are, the easier it's going to be for them hire experienced people who can smooth those things out. If you look at where they are now, and where the top of the industry is, they can basically get three times more efficient. Amazon has shown with shipping that it will eventually get there.

Sciple: Yeah. Clearly, this is something that Amazon's interested in getting more and more involved with. We're going to continue to follow the story. This is the third or fourth time we've had you on the show to talk about this, Dan. We'll continue to bring this to ground.

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