Tony Jannus was an American pilot who flew the world’s first commercial airline flight. It was between St Petersburg and Tampa in the US state of Florida in 1914. He instantly became a celebrity. Pilots were then feted like astronauts. The dashing Jannus had a vast female following.

But his name will ring long for creating a destructive industry. Commercial flight environmental damage is alarming. Its capital destruction is even worse. In the last 106 years, the airline industry has never made money. Covid-19 may wipe out the airline industry. According to the International Air Transport Association (IATA), the aviation industry will lose US$84 billion ($115.4 trillion) this year.

In a strange twist, food delivery is taking off when aviation is collapsing. Covid-19 is wiping out one loss-making industry and boosting another. Food delivery through apps such as Uber Eats, Deliveroo and Just Eats has risen 71% in 1H2020. In Singapore, Foodpanda and GrabFood have done more business in 1H2020 than in the whole of 2019. Food delivery apps were also the most downloaded in Singapore during the “circuit breaker” period.

Pizza Hut pioneered online food delivery in 1995, when the internet was a curiosity. It has been only in the last five years that it has emerged as a serious industry. The smartphone has fuelled the trend. The total industry is expected to reach US$136 billion this year, which is double the level in 2015. It has reshaped dining habits and disrupted restaurants. The users of online food delivery have also risen from 1.3 billion in 2014 to over 2.1 billion this year.

There are a raft of listed giants in the field. They are mainly in China and the West. The big gorilla is Chinese shopping platform Meituan-Dianping, which has a market capitalisation of US$177 billion. Meituan’s sales have risen 10-fold in the last five years. It provides 25 million meals a day, which is more than the total amount of meals provided by the rest of the industry.

Meituan has recently turned a profit, but a sea of red stalks the industry. Other players such as GrubHub and Doordash in the US and Just Eats in Europe lose about US$0.25 for every dollar of revenue.

This week, Uber reported its results. UberEats, its food delivery arm, saw revenues double to US$1.8 billion. Its adjusted Ebitda losses were US$232 million. Despite incredibly fortunate circumstances, it still lost money!

Food delivery has a basic problem. It is a tech business without the network effect. The business is high-tech with a low-tech last mile problem. The average order takes around 30 minutes to execute. A delivery person can, at best, do two deliveries per hour. The more business one undertakes, the more delivery fees accrue to the driver.

The other issue is the crippling operating expenses. The food delivery players have to invest heavily in online marketing. Fave — a popular app in Singapore — provides a $10 discount for any new user. Operating expenses have averaged over 90% for Grubhub in the past three years.

The severe cash burn in this industry will not hinder its growth. Interest rates are so low that hungry investors are eager to fund the cash burn. Amazon took seven years to deliver profits. Many airlines never generated profits, if one accounted for their cost of capital.

The food delivery is valued at a multiple of their sales, as they do not even have operating profits. The industry average for the global players is about five times FY2021 EV/Sales. Meituan is the outlier at nine times FY2021 EV/Sales. That may be warranted due to its scale economics in China. It has increased the number of meals served a day by a factor of 10 in five years. There is still room for growth, as only a third of the country is covered. 

The major players may scour the world for acquisition targets. The emerging markets of Indonesia, India and Brazil have the ingredients to repeat Meituan’s success.

Jannus died in a plane crash in Russia, just two years after his famous flight. He was just 27. Commercial aviation has thrived for the last 104 years, despite its poor returns.

It is still early days for food delivery, as it is only a quarter century old. Companies may crash, but the industry’s valuation will soar.

Nirgunan Tiruchelvam is head of consumer sector equity at Tellimer (Exotix Capital)