Study Analyzes How Drones Could Take Off As Retail Delivery Vehicle

(Source: retailwire.com)

If the FAA gives Amazon clearance for commercial rollout of its drone delivery service, the price a consumer would pay for the delivery of a five-pound package could be as low as $1.00, according to a study from the financial firm ARK Invest.

Equally impressive, delivery times could drop below thirty minutes. The cost in fact would be lower and the time significantly shorter than that achievable by delivery trucks and couriers. The findings were based on existing technology and prices.

Explaining how it came up with the $1.00 delivery charge, ARK Invest estimated that at least 400 million annual shipments from Amazon to U.S. customers would be eligible for drone delivery. With drones “relatively inexpensive,” an investment of less than $100 million would support the upfront costs to buy the required tens of thousands of drones and related infrastructure. Another roughly $300 million would be spent annually for service, maintenance and fueling at full penetration, including the thousands of human operators needed to oversee the drones and ensure safety.

The findings assume human operators are responsible for drone landing and takeoff, but most of the drone flight would be automated. The study assumed each package weighs as much as five pounds and each delivery is no more than 10 miles.

Wrote Tasha Keeney, ARK Analyst, in a blog entry, “400 million packages delivered for $300 million in operating expenses and with a $100 million capital investment implies that Amazon could earn a healthy return on capital pricing the service at $1 per delivery.”

Based on ARK original research, the delivery cost to Amazon would be 75 cents, a margin that would allow Amazon to break even after the first year.

Mr. Keeney added that, depending upon the operating expenses of the program, “it may make strategic sense for the company to effectively offer the program free to Prime members across all its major US metros.”

While the FAA recently granted Amazon approval for drone testing, ARK Invest noted that drone delivery faces “significant regulatory hurdles” and the safety and reliability of drones needs to be addressed.

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