1.Atlas Air's Freighter Strategy Adjustment

Atlas Air CEO Michael Steen announced that Atlas Air will cease operating freighters for Amazon's domestic parcel network in the U.S. by mid-next year. Instead, the company will focus on providing international wide-body services to its growing customer base, which will soon include two major Chinese e-commerce giants, SHEIN and TEMU.

Atlas Air and Amazon's contract was initially set to expire in March 2026. However, both parties have agreed to terminate Atlas's provision of crew, maintenance, and insurance (CMI) for 25 converted freighters, which include 8 Boeing 737-800s and 17 Boeing 767-300s, primarily provided by Amazon.

Simultaneously, Atlas Air Worldwide Holdings and Amazon have agreed to extend the lease of 16 B767 aircraft operated by Atlas for an additional three years. These planes are owned by Titan Aviation, Atlas's leasing subsidiary, and were initially leased to Amazon for ten years. At that time, Amazon hired Atlas Air separately for operation, allowing Atlas the right to transfer the aircraft to other operators under CMI contracts.

Titan Aviation leased a total of 19 767 aircraft to Amazon, with two operated by Air Transport Services Group (ATSG).

Amazon directly controls the operation of 8 Boeing 737-800 aircraft, mainly leased from AerCap, and may potentially have them operated by other air cargo companies in the future.

Michael Steen stated that after the termination of the contract with Amazon, Atlas Air will reallocate resources to its intercontinental business, which has greater profit potential. To this end, Atlas will add 8 wide-body freighters in 2024. Two Boeing 777 freighters ordered from Boeing in 2023 are planned to be deployed in the fourth quarter for an undisclosed customer.

In addition to its cooperation with Amazon, Atlas has also partnered with shipping giant CMA CGM. Recently, CMA CGM announced that its newly established airline had signed a CMI agreement with Atlas Air to operate two Boeing 777 freighters on transpacific routes in the coming months.

Moreover, Atlas Air recently acquired four Boeing 747-400 freighters, which will join the fleet in the third quarter. Two of these freighters will be dedicated to serving SHEIN and TEMU.

"Therefore, from a strategic standpoint, when considering the return on investment of the assets we are deploying, we will certainly opt for larger wide-body aircraft and the strongest growing intercontinental markets," Michael Steen concluded.

2.The Global E-commerce Market's Need for Large Freighters

Currently, Atlas Air operates or leases 112 aircraft, including 48 B747-400s, 10 B747-8s, and 7 B777-200s, with the fleet expected to reach 120 aircraft by the end of the year. Additionally, Atlas's sister company, Polar Air Cargo, operates 9 wide-body aircraft.

Atlas Air holds over 10% of the global wide-body freighter fleet and is well-positioned to leverage the growing demand for industrial goods and electronics, as well as the surge in e-commerce shipments. According to Michael Steen, while the narrow-body regional freighter market is saturated, the future for long-range freighter operators looks bright.

First, the air cargo industry is expected to see a compound annual growth rate of 3.5% to 4.5%, while the overall industry capacity growth rate is 1%. The massive retirement of older freighters justifies investing in large freighters like the 747 and 777. About 20% of the 650 wide-body freighter fleet worldwide is over 30 years old and nearing retirement.

Structural changes in the passenger industry have also driven the need for more dedicated freighters. About 60% of global air cargo is transported by freighters, while 40% is carried in passenger aircraft belly holds. However, only 47% of intercontinental belly hold capacity is available for air cargo since airlines have reconfigured cabins to accommodate more premium seats post-pandemic, leading to passengers carrying more luggage, which reduces container space and shifts networks to leisure destinations with limited cargo demand.

Currently, the surge in shipments from Chinese e-commerce platforms and fast fashion companies has become a major driving force for the air cargo market's development, showing no signs of slowing down. According to Boston Consulting Group, e-commerce accounted for approximately 19% of global retail sales in 2023, and is projected to capture 41% of the market share by 2027.

SHEIN has become the second fast fashion retailer, following Spain's Inditex, to sign a long-term dedicated charter agreement with Atlas Air. Fast fashion companies need to continuously introduce new products on their websites with very short inventory turnover times, making it crucial to deliver orders to customers and stores quickly before trends change.

Atlas Air also operates dedicated freighters for Alibaba's logistics division worldwide, while some freight forwarders and Mediterranean Shipping Company's new air cargo airline support their e-commerce customers through regular charters.

Michael Steen noted that these companies' cargo volumes are substantial, necessitating dedicated freighter services.

Previously, SHEIN and TEMU used Atlas Air's short-term charter services, but starting from the third quarter, these two companies will have full control over the freighters.

Atlas Air, the world's largest operator of 747 freighters, has expanded its lead by adding four used 747-400s. Two of these freighters were purchased from Azerbaijan's Silkway West Airlines, and the other two, formerly owned by China Airlines, were acquired from U.S. trader Jetran.

As air cargo demand continues to grow, more companies are signing freighter cooperation agreements with Atlas Air. For instance, Nippon Cargo Airlines renewed an agreement with Atlas in May for Atlas to operate five of NCA's 747-400 freighters between Asia and North America. In March, Chinese logistics company YunExpress signed a long-term charter agreement with Atlas to use a second Boeing 777-200 freighter.

3. Amazon's Freighter Adjustments

Changes in the collaboration between Atlas Air and Amazon indicate that at least part of Amazon's 767 fleet will be handled by ABX Air, one of two cargo airlines under Air Transport Services Group (ATSG).

In early May, ATSG announced that under a five-year contract, Amazon would provide an additional 10 767-300 freighters, which ABX will begin operating for Amazon in June. ATSG did not disclose where Amazon would acquire these aircraft, but all planes are expected to be delivered by December 1.

Amazon has the right to supply ABX with 10 aircraft. Currently, ABX operates 4 B767-200s for Amazon, while ATSG’s sister airline operates over 40 767 aircraft for Amazon.

Additionally, Amazon holds nearly a 20% stake in ATSG. Amazon previously owned shares in Atlas Air but these were acquired by a new ownership group.

Besides ATSG and Atlas Air, Amazon's other outsourced air cargo service providers in the U.S. include Sun Country Airlines, which operates 737-800 aircraft, and Hawaiian Airlines, which has two Airbus A330-300 converted freighters.

Regarding the termination of the dedicated transport agreement with Amazon, Michael Steen declined to provide further details. According to the agreement, Amazon can terminate the contract with 180 days' written notice in the event of a change in ownership or performance issues. Penalty clauses may apply to either party for early termination, but negotiations may be required.

Amazon's media representatives did not respond to inquiries about changes to the company’s air cargo network. An analyst familiar with providing outsourced air transport services for express delivery companies expressed skepticism about Atlas Air voluntarily giving up Amazon's domestic flights to focus on wide-body freighter operations. However, he acknowledged that the new ownership might evaluate investment returns differently.

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