Amazon's fleet of 767s is bad news for FedEx and UPS, Morgan Stanley says (AMZN, FDX, UPS)

amazon air

Amazon's cargo planes are poised to take market share from UPS and FedEx, Morgan Stanley said.
The online retailer had leased 40 Boeing 767 cargo planes and invested aggressively in its first air-cargo hub.
Amazon's air-delivery system could lead to as much as a combined 10% drop in revenue for UPS and FedEx.
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Amazon's cargo planes are poised to take market share from the logistics giants UPS and FedEx, Morgan Stanley says.

"The market is missing the risk Amazon Air poses to UPS/FDX growth," a group of Morgan Stanley analysts led by Ravi Shanker said Tuesday.

In August 2016, the online retailer revealed its first cargo plane, Amazon One, — a converted Boeing 767 operated by Amazon partner Atlas Air — highlighting its desire to take over package-delivery logistics.

At the time, Amazon said it leased 40 fleet units through air cargo partners Atlas Air and ATSG, and had invested aggressively in its first air-cargo hub located in Hebron, Kentucky, in order to reduce its reliance on the traditional logistics companies like UPS and FedEx. The Wall Street Journal reported in February 2017 that the tech titan was planning a $1.5 billion investment in the air-cargo hub, which Morgan Stanley says could potentially handle 100 planes.

According to the bank, Amazon can save $2 to $4 per package when using its Amazon Air deliveries, which could add up to savings of as much as $2 billion, or 6% of its global-shipping costs in 2019. Meanwhile, Amazon's cost effectivity could cause UPS and FedEx revenues to fall by a combined 10% by 2025.

"Though Amazon Air's rollout is in the early innings, we estimate a 200-300 bps impact on UPS and FedEx Domestic Air Volume growth already, with more erosion expected as Amazon Air is built out," said Shanker.

"We also estimate that Amazon that Amazon Air's lanes overlap with over two thirds of the volume flown by UPS+FedEx combined."

As a result, Morgan Stanley lowered its price target for UPS to $87 from $92 and for FedEx to $230 from $240.