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Christmas Will Be Brought To You This Year (More Than Ever Before) By Airplanes

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It may not increase the intensity of your child’s gleeful smile on Christmas morning, but on average roughly every fifth present opened this Christmas will have come to you, at least partway, by air.

And we’re not talking about a certain magical sleigh pulled by reindeer.

The second-biggest – and likely least noticed – trend in holiday commerce over the last 20 years is the rapid growth of delivery of gifts by small-package air freight carriers. Quite obviously, that growth is linked to, and driven by the still-mushrooming boom in online Christmas shopping.

In the vast majority of cases it continues to be far more efficient and cost-effective for companies to stock their brick-and-mortar stores using relatively old-fashioned 18-wheel trucks. That, in part, helps explain the continued – and rapid - growth of the trucking industry in recent years, and the intense stress on trucking companies to hire more drivers and put more trucks on the road. But when it comes to fulfilling 2 billion or more individual orders placed directly with manufacturers or online retailers via the internet, each requiring delivery to a distinctly different doorstep somewhere, nothing is as efficient and cost-effective as small-package delivery via air.

That’s why more than 1,000 dedicated freighter aircraft – from giant Boeing 747s and McDonnell Douglas MD-11s to single-engine Cessna 208s with all nine passenger seats removed – will be operating to, from and within the United States virtually every day between now and Christmas. And it’s why the bellies of nearly all 4,000-plus passenger aircraft in service with U.S. airlines, will also be unusually full on virtually every flight this month.

‘Tis the season for shopping and shipping. The National Retail Federation expects Americans to spend more than $720 billion this year on celebrating Christmas, with the vast majority of that being spent on gifts.  That would represent a nearly 5% increase in holiday gift spending over just last year, which itself was a boffo year for Christmas shopping and shipping.  Sociologists and economists continue to debate the  “chicken or the egg?” question of whether the growth of online shopping drives increased air delivery of gifts or the availability of cheap air delivery of gifts drives the growth of  online shopping.  But they’re already pretty certain that this year we’ll see another 15% increase in e-commerce in the holiday season. And the fact remains, all those ugly ties, oddball kitchen gadgets, dolls, Tonka trucks, sweaters and, especially, electronic items bought online have to get delivered to more than 126 million individual homes or apartments in the U.S. (plus who knows how many homes outside the country).

Indeed, the growth in demand for delivery – both by air and by ground services – of holiday gifts has become so profound in recent years that all of the big shippers now dismiss the notion of there being a “busiest” shipping day before Christmas as a quaint old notion.  Each of the first 16 normal (non-weekend) shipping days of December will rank among the very busiest days of the year with each day seeing around 30 million packages brought into the system. That’s nearly double the company’s average daily package volume of around 16 million.

FedEx, meanwhile says it expects every Monday in December except December 31 to rank at or above its current busiest day ever, Dec. 10 of last year, when it took in more than 19 million packages (or 200 per second).

The reigning king of air delivery of Christmas gifts continues to be UPS. The $54-billion-a-year giant ships only about 3% of the packages and documents it handles via air. To handle the Christmas crush UPS expects to hire 100,000 seasonal employees to help on both the air and ground shipping sides of its business.

And that holiday demand is enough that the company, which owns 247 of its own dedicated aircraft, flexes its fleet upward to nearly 600 aircraft through the use of short term leases on and very short term charter contracts for additional freighter aircraft. A bunch of those leased and charter planes operate for UPS during other times of the year, or even on an everyday basis. But the UPS fleet, including leased and chartered planes, always reaches its annual zenith in December.

FedEx Express, the $65-billion-a-year Memphis-based company that pretty much invented the overnight small package air delivery business back in the 1970s, may not be the first name that comes to mind when getting a gift purchased online shipped. FedEx’s business model and market emphasis is weighted more toward documents and the shipment of large items than is UPS’. But FedEx operates an even bigger fleet of aircraft – 670 freighters – than UPS, even when counting UPS’ seasonal flex-up to handle the holiday rush season. Still, while UPS has done a great job positioning itself as the leader in air delivery of holiday gifts to individual addresses, FedEx is no slouch in that department. As evidence, FedEx is adding 55,000 seasonal workers this holiday season.

But the two big players in the industry are far from alone. Nor are they guaranteed to never be challenged by other powerful competitors.

Amazon Air changed its name nearly two years ago from Amazon Prime Air to give Amazon’s still-in-development drone-based local delivery unit room to build its own brand identity. But the ridiculously fast-growing, 21-year-old company continues to build its own airline operations.  Launched only three years ago in December 2015, Amazon Air now has a fleet of about 40 aircraft, all Boeing 767 freighters. But instead of spending heavily to develop expertise in the complex and heavily regulated commercial aviation industry, Amazon is hiring third parties to supply the aircraft and in some cases the crew, the maintenance and operations expertise and even the insurance that covers its planes. That gives Amazon the ability to flex its fleet size up and down seasonally with relative ease, and keeps it from having to invest too much in aircraft support systems and infrastructure. Nevertheless, it has acquired nearly 900 acres at the Cincinnati/Northern Kentucky International Airport, where the aviation unit of Amazon has established its headquarters, and is nearing completion of Phase 1 of its air sorting hub. By the late 2020s Amazon Air expects to more than double the size of that sorting hub and to have more than 100 freighters based there, with a schedule of 200 or more flights a day.

That doesn’t mean Amazon plans eventually to shift all of its shipping business away from UPS, its biggest provider currently, FedEx and other third parties. In fact, if current growth trends continue Amazon’s use of third-party air delivery companies could increase going forward, at least during the holiday season, even as it builds its own branded freight airline. But by operating, through so called “wet lease” or “ACMI” arrangements with freight aircraft leasing and service companies Amazon hopes to maintain significant control over the cost delivering items. If UPS, FedEx or others try to boost their rates charged to Amazon, the online retailer will always have the option of adding even more capacity to its low-cost captive freight air carrier unit.

Finally (though not really finally because there are other small air delivery companies competing in niche markets), there’s the United States Postal Service. For a time in the 1980s and early 1990s the USPS, through leasing arrangements with third-party cargo carriers, flew around a fleet of 20 or so Boeing 727s painted in Post Office colors. But for more than two decades now the Post Office has relied on third parties to carry airmail and air packages for it, using chartered planes whenever necessary. Beyond that, the big passenger airlines haul a huge amount of mail annually for the Post Office. Passenger planes typically have lots of available space in their bellies. And since those planes’ operating costs are covered by revenue generated from human passengers, airlines typically look at any revenue they can generate from flying freight or mail as gravy. Thus, that space is relatively cheap. It also gets packages very near their final destination because the passenger airlines’ more than 4,000 planes serve more than 1,700 airports nationwide and more than 1,200 additional airports outside the United States on a scheduled basis. Not even UPS or FedEx can match that with their large numbers of dedicated freighter aircraft.

Beyond that, the government-owned/government-run USPS contracts with FedEx, and to a lesser degree, UPS to deliver packages the so called “final mile” to consumer homes.  Thus, yourneighborhood USPS mail carrier may well deliver FedEx or UPS packages to your door this Christmas season, earning the USPS a delivery fee for each package delivered.