You Won’t Believe the Mistake Uber Just Made in Melbourne

Melbourne is a wonderful city. In fact, it regularly ranks high in those annual lists of the world’s most liveable cities.

The city is relatively small compared to most global metropolitan cities. That means to get around and really soak up all it has to offer isn’t say as stressful as it is in Tokyo, New York or London.

Melbourne is home to some of the world’s great culinary delights. You can find everything from a hole in the wall dumpling eatery in Chinatown, to a Heston’s restaurant by the river, and, of course, take your pick at the hundreds of independent coffee bolt holes in the wonderful graffiti-art lined laneways.

It’s also the go-to place for some of the world’s great sports events. Every January, the Australian Open, one of the big four tennis majors, sets the city alight.

Then usually sometime in March the Australian Formula 1 Grand Prix rolls into town — it’s usually the first race of the new season each year.

Add to the mix Australian Rules football, rugby union, football (soccer), cricket at ‘The G’, a lot of international and domestic visitors flock to Melbourne throughout the year as well.

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During 2017, Melbourne set all new records for the number of visitors hosted for a minimum of an overnight stay. With 2.74 million international and 9.25 million domestic visitors, it’s one of the great cities for people to visit when they head ‘Down Under’.

But while it’s a wonderful city (I’m a little biased because I was born there), you still wouldn’t put it at the same level as the world’s great cities like Tokyo, New York, London, Paris or Amsterdam.

Not that it’s not as equally (or more) nice. Just that globally, it doesn’t really sit in the same echelon.

But perhaps it might be finally getting its time to shine in the global spotlight, thanks to one of the world’s most controversial public companies, Uber Technologies, Inc. [NASDAQ:UBER].

Controversy from day one

I remember going to a tech event in Paris back in 2013. One of the speakers at the event was Travis Kalanick, then CEO of Uber. Kalanick is Uber’s founder, too.

He told the story of how Uber came about. How trying to get a taxi in Paris in the rain once had proved to be such a hassle he figured there had to be a better way.

But he also spoke back then of how Uber wasn’t necessarily just about ride sharing. In fact, they were an ‘urban mobility’ company. And they really were focused on creating a mesh-like network across urban areas where they could deploy all kinds of mobility solutions.

And over the years, they’ve stayed true to that vision. Sure, their primary business has been the deployment of Uber cars. But they’ve also rapidly expanded into deliveries, autonomous vehicles and now their biggest leap yet, flying taxis.

However, it hasn’t been smooth sailing for Uber. From the outset, there was massive pushback from the taxi industry because of how Uber was smashing the market. There were protests, violence, even lawsuits to try and get Uber’s ability to operate taken away.

But they survived. Then there were the sexual misconduct allegations and a targeting of Uber’s poor corporate culture that drove Kalanick out of the company. There have been accidents in relation to their autonomous car testing, numerous reports of sexual and physical abuse (and worse) about Uber drivers, and the lax standards of their vetting process.

Yet the whole time Uber powered on, fuelled by venture capital and private wealth. Eventually Uber debuted with an IPO this year. It has been one of the most hotly anticipated IPOs that I can remember since perhaps Facebook. And coming in at a valuation of more than US$70 billion, it had a lot to live up to.

So far, the stock price hasn’t done much. Its IPO price was US$45 and it’s currently trading around US$42. And we know that their growth is slowing, and they continue to make massive losses.

Which is why their latest attention-seeking announcement of flying taxis feels desperate to us. In fact, we think this could be the single biggest mistake Uber has and maybe will ever make.

What happens after the first accident?

Deciding to launch this Uber Air service in Melbourne isn’t a crazy decision. Melbourne’s layout actually is relatively suited to something in this arena. But we think that Uber is chasing a market that doesn’t and won’t exist.

If you think Uber’s mega losses are big now, wait until they write off their Uber Air business as an utter failure. There’s a good reason why we don’t see hundreds of helicopters in the sky now ferrying passengers around town.

Sure it might alleviate traffic…until the traffic exists in the air. And then you’ve got to ask just how comfortable people will be when the first one has an accident. It’s not something you’d want to think about, but no aerial vehicle ever has a perfectly clean accident record.

We know planes crash; we know helicopters crash. It’s reasonable to expect a similar outcome. What happens then? It’s one thing if a car crashes and someone is hurt or worse. It’s something very different if it’s a helicopter, vertical takeover aircraft…whatever you want to call it.

One car crash won’t kill Uber, but one aircraft crash might.

Our view is that this desperate push to small, urban aerial vehicles is a pathway to pain. The smarter route in development of autonomous land-based vehicles. That’s where a massive dent in urban mobility is going to be made, not in the air.

Uber in our view is making a huge mistake and no one is calling it for what it might end up being, a complete disaster.

Instead, we think there’s another area of ‘aerial innovation’ that’s got real commercial appeal and could make investors a bucketload along the way.

And that’s the move into aerial drones for cargo. Every minute of every day there are cargo planes shipping goods all over the world. They fly at all hours and help feed our appetite for instant delivery of goods.

These planes that move goods around need pilots and they require huge amounts of fuel and maintenance to operate. Our view is that autonomous aircraft (drones) are going to hit the skies, but not with a few hundred passengers on board. The public isn’t quite ready to cross that chasm yet.

But a plane full of cargo? And perhaps even an electric powered ‘drone’? Yes, we think that’s the next real opportunity for aviation. And the likes of DHL, UPS and Amazon will be pushing hard into that space as soon as they can.

But who really benefits from this? Well it’s likely to be companies like The Boeing Company [NYSE:BA]. Boeing’s Chief Technology Officer said last year:

Clearly, for transporting cargo, you could see autonomous aircraft,

It’s going to be much longer, if ever, if we’d see that for passenger travel, though.’

Of course, there’s going to be pushback from airline unions and pilots. But when the cost savings are added up by airline freight companies, we think that well before flying taxis are a ‘thing’ unmanned cargo planes will be commonplace.


Sam Volkering,
Editor, Secret Crypto Network

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Sam Volkering is an Editor for Money Morning and is small-cap, cryptocurrency and technology expert.

He’s not interested in boring blue chip stocks. He’s after explosive investments; companies whose shares trade for cents on the dollar, cryptocurrencies that can deliver life-changing returns. He looks for the ‘edge of the bell curve’ opportunities that are often shunned by those in the financial services industry.

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