Australia Post looks to fly high on Amazon (and Qantas rubs its hands)

As Australia's largest domestic parcel distributors, Australia Post has a lot to gain - or lose - by picking up a partnership with Amazon when the US behemoth starts operating in Australia. That partnership's a story that's in the mill today. Rather than allowing competitors to surf on the new wave of deliveries, or to encourage Amazon to forge its own path, the old post office is in a strong position to offer nationwide coverage.

But according to new chief executive Christine Holgate, speaking to the Australian Financial Review, she is anxious to continue to service the existing retailers too, as well as avoiding getting caught with underwriting a major infrastructure investment that might only be temporarily used - something that happened to the UK's Royal Mail when Amazon landed there.

And in the background, Qantas too is well positioned to win, whatever happens. In Jul-2016, Qantas launched a dedicated five freighter network branded in Australia Post's StarTrack livery; the deal also includes the already existing priority access to cargo space in the Qantas Group's passenger fleet. Five of the dedicated freighters came from Qantas Freight's existing fleet, and the sixth, a 737-400 operated by a Qantas subsidiary, was added in May-2017.

The five year Qantas-Australia Post contract was worth over AUD500 million, covering "the transport of Australia Post's domestic mail, parcels and Express Post until mid-2020". The deal also embraces access to international freight space, but it is the domestic network that is mostly set to benefit from the boost in traffic - both dedicated freighter and bellyhold space - that Amazon promises.

Freight is a quiet performer and recent trends have indicated a likely revival of air freight industry, although yields remain challenged. Qantas doesn't trumpet its StarTrack partnership (in fact it scarcely appears in its reporting at all), but quietly noted in its 2017 annual report that "Qantas continues to hold (a) strong domestic market share" in the freight sector and that the airline's "domestic performance remains stable, (and the) new 737-400 will enable further growth opportunities".

(Technically the new 737-400 freight operation is performed by Express Freighters Australia, Qantas' wholly owned subsidiary, while the other five aircraft - two 737-300s and three BAe146-300s - in the StarTrack contract are part of Qantas' mainline freighter fleet)

Qantas Freight delivered the group an underlying EBIT of AUD47 million in FY2017. Although international freight prices are fiercely contested, the potential for a relatively low risk upside domestically has to be good as the online buying contest hots up.

Amazon and the competition for package deliveries that it will stimulate with local retailers should be good news for everyone. But the Australia Post-Amazon deal isn't done yet.