Uber need not be a new Pan Am

Pan Am was the world’s first commercial airline, reducing journeys that once took weeks to days or even hours. Though initially priced to serve only the rich and famous, the airline drove technological advancements that brought costs down to the point that almost anyone could afford a flight. It forever changed the way we move.
At its height, Pan Am’s empire stretched to six continents. Yet by end of century, the company that had pioneered and dominated an industry was bankrupt,
dispossessing over 100,000 employees of their pensions and erasing billions of
dollars of shareholder value.
Uber has mirrored Pan Am’s meteoric rise, driving innovations that have reduced the cost of hailing a ride to the point that almost anyone can afford it, at times even cheaper than public transportation. Today, the company directly employs more than 12,000 people and connects two million drivers who work on its platform across six continents. Uber, too, has transformed the way we move.
Both companies grew thanks to charismatic founding CEOs who charmed their ways past regulators, boards of directors. They raised record-setting amounts of money based on stupendous early growth, despite persistent losses. As Uber prepares for its IPO in 2019, it is at risk of following Pan Am’s fall as well as its rise.
Those who believe in Uber’s eventual triumph operate on an assumption that transportation is a winner-take-all (most) market. In theory, there’s a virtuous cycle: More demand for Uber means Uber is able to attract more drivers, which makes its service better, which attracts more riders.
The trouble with this “network effect” hypothesis is that it does not hold for transportation companies in the same way as it does for digital firms. Uber has raised an astounding $17.3bn to date and spent $10.7bn of that; Bloomberg noted this year that “few companies in history have grown so fast or lost so much money in such a short period of time.”
Throughout the 20th century, Pan Am set records for how much financing it was able to secure, despite racking up some of the largest losses of any public company. In 1966, justifying the largest commercial deal in history when Pan Am ordered 25 Boeing 747s, CEO Juan Trippe asserted that air travel would continue its breathtaking growth of 15 percent a year for the foreseeable future. Four years later, air travel was growing at a mere 1.5 percent per year, and it never returned to its early growth rates.
Uber has raised its billions while projecting that ride-hailing market will reach a total size of $1 trillion, 40 times today’s numbers. Yet recent reports suggest that this internal forecast has already been revised down to $100 billion to $150 billion, as studies estimate that ride hailing will hit a growth ceiling. It’s possible the ride-sharing market will never again grow as fast as in the past decade; if it does, there is no guarantee that Uber will own the majority of it.
—Bloomberg