‘It’s opened up the skies’: How a recent regulatory shift changes the drone delivery landscape

The authorizations allow the companies to deliver packages while keeping their drones separated using unmanned aircraft system traffic management (UTM) technology, born out of NASA, where the drone companies manage the airspace with FAA oversight and share data and planned flight routes with other operators. Drone operators began testing the UTM services in 2023 with simulations and thousands of flights in separated airspace before the FAA allowed flights in the shared airspace, according to the agency.

Retailers have been experimenting with drone delivery operations for more than a decade, though regulatory challenges have slowed the technology’s adoption. In 2013, the concept became popularized when then-Amazon CEO Jeff Bezos showed off drones that could deliver packages to homes in less than a half hour. Walmart and DroneUp launched drone deliveries of Covid-19 testing kits in 2020 and, in 2021, invested in the company and launched commercial drone delivery operations later that year.

Walmart has said its drone deliveries get small items like snacks, beverages, baby wipes or even fragile items like eggs to customers in 30 minutes or less, sometimes as quickly as 10 minutes, to customers within a 10-mile radius of stores.

Before the late July authorization, drone delivery companies would sometimes have to call or text each other to make sure they’re not getting in the way. “This is a key moment for the entire aviation industry as the world prepares for a future with more flights and an even greater need for coordination,” drone operator Zipline’s head of UTM Chris Lyons wrote in a blog post.

The regulatory approval could help continue to boost the number of commercial drone deliveries in North America, which almost doubled from 2022 to 2023 to more than 150,000, according to McKinsey estimates published in the Wall Street Journal earlier this year. Previous moves by the FAA may have contributed to this, such as the authorization of flights beyond the visual line of sight — flights without an operator directly observing the drone from the ground. A DroneUp representative told Modern Retail that while it doesn’t share specifics, it has seen an increase in deliveries since the new approval.

Data from the initial flights will inform the FAA in creating rules around wide-scale drone operations without special authorizations.

Nate Milner, head of operations and strategy for Wing, said that as of July, Wing fulfilled about 150 orders per day in the region and has completed more than 400,000 deliveries with its current aircraft. Before the approval, he said, it was near impossible for Wing to operate in the same parts of the region as its competitors. The company began flights using UTM in August.

“It’s opened up the skies,” Milner told Modern Retail. “The more customers that have that ability to order, we view it — whether they’re ordering from Wing or elsewhere — as a good win for the industry.”

Drone operators face a unique challenge in traffic management — unlike other aircraft, where air traffic control is supported by the federal government, the drone companies and their vendors currently maintain their own systems. John Vernon, co-founder and chief technology officer for DroneUp, said more work needs to be done around how UTM is leveraged and scaled and whether the federal government or third parties should host it moving forward.

“The [drone] industry is effectively having to almost build all of these things from the ground up in a way that makes it hard and economically infeasible to continue to scale,” Vernon said in an interview. “That’s not to say we won’t overcome it and achieve it, but it is a place where long term we need to be able to drive higher degrees of economic certainty.”

Traffic management is one part of the economic challenge of achieving widespread drone adoption, along with labor, technology costs and other regulatory hurdles. In August, DroneUp ended drone delivery services with Walmart in Phoenix, Salt Lake City and Tampa to focus on its other locations, largely in the Dallas area, Axios reported. “It made sense to consolidate our resources into the area where we can say, this is the model that will start to look like what is scalable and what is economically viable,” Vernon said. “Unfortunately, those locations fell off the list.”

DroneUp’s goal is to get its costs under $7 per delivery — until then, the technology remains an isolated test. DroneUp CEO Tom Walker told Axios that it is currently about $30. “We’re not at a place today, and neither are any of our competitors, where their core unit economics are really driving to the level that it needs to be,” Vernon said. “We see the pathway, and we continually incrementally reduce the cost of drone delivery, but it’s not to the place that it needs to be to become ubiquitous.”

Still, drone operators are optimistic customers will embrace the service. A new survey from Wing found that 58% of shoppers said they are likely or very likely to use a drone delivery service if it were available in their community. And Milner said once customers actually get the chance to try it out, they come back. “We’re seeing significant repeat business because it works, and it’s a great user experience,” he said.