As the retail industry moves into full gear for the Holidays, Amazon takes center stage by announcing a new hub for its burgeoning air freight fleet. The new freight hub is currently under construction at Fort Worth Alliance Airport in Texas and is expected to become operational early next year. This marks the first air hub that Amazon will be able to design from the ground up with 50% of space being reserved for future development.
Amazon's presence at Alliance is notable because FedEx Corporation (NYSE: FDX) is currently the sole commercial operator at Alliance Airport. Already legacy freight carriers are facing increased competition by Amazon Air's expansion. On December 4th Morgan Stanley (NYSE: MS) issued a parcel sector report that rated the stock of UPS (NYSE: UPS) to be underweight with a risk of Amazon capturing its large business to consumer marketplace.
Both FedEx and UPS have struggled on the stock market, falling 28% and 18% respectively against the S&P 500 loss of 6.3% year-to-date. Morgan Stanley estimates that Amazon's rise in aviation will siphon 2% off of UPS's revenue in 2018 and Amazon's increased cost efficiency could erode 10% of FedEx and UPS's revenues by 2025.
"The market is missing the risk Amazon Air poses," explained Morgan Stanley equity analyst Ravi Shanker.
Amazon Air began operations in 2015 and has mirrored its parent company's rapid growth. Amazon itself was founded in 1994 and became the world's second trillion-dollar company in market capitalization in September of this year.
"For now, investors are focusing on Amazon's last-mile efforts, but we believe the challenge in Air is just as relevant" said Shanker.
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