What Price the Stars?
Virgin Galactic, and other suborbital tourism companies, are talking initial price offerings of 200,000, in either US dollars or UK pounds, for a seat on a suborbital flight. Now this is quite a bit more than they were initially saying, which was about 100,000. So were the earlier predictions of low prices overoptimistic?
I don't think so. Richard Branson has been saying that the latest price is for 'premium seats', meaning (I think) the first two hundred or so tickets sold. In other words, he's charging extra for the privilege of being among the first passengers, for the name-in-the-history-books thing. This is just sensible economics -- in other words, charge what the market will allow. Why ask a hundred grand from people willing to pay two hundred? It would also help pay off Virgin Galactic's overhead faster, and put the company in the black more quickly.
So how quickly could the prices come down, and where could they finish? Obviously it's impossible to predict precisely, but it's worth examining all the input costs to consider how fast it could decline. Firstly, there's the cost of the spacecraft itself. Let's just say that Spaceship Two, as it's being called, ends up costing somewhere in the vicinity of $30 million each. How much of that you pay in each ticket depends on how many times each vehicle flies. If you fly it once, then throw it away (as has constituted orbital spaceflight thus far) then your ticket will cost you all of that $30 million (divided by the number of seats on the spacecraft), plus extras. Virgin Galactic is much cheaper because Spaceship Two is reusable, so it's $30 million divided by the number of times it flies. The more it flies, the less that initial expenditure cost will show up in the ticket price. This is how airlines today can afford so many expensive aircraft -- they spend more time in the air, making money, than on the ground. Needless to say, if NASA ran an airline, it would fly each aircraft once, then throw it away, so your average ticket would cost a few million dollars.
Then there's fuel. My understanding is that fuel isn't actually that expensive on Spaceship Two (it's rubber and laughing gas) and will probably get cheaper as their flight-frequency increases, allowing them to order in bulk. Mass production makes everything cheaper -- witness every piece of consumer electronics ever to achieve success. That's because similar overheads can be employed to create much larger volumes of product. The same applies to space tourism operations -- Virgin Galactic will have spaceport fees, various licensing fees, engineers, pilots and staff to pay, catering and hospitality for its customers, etc. Much of this cost will remain constant, whether they fly ten times a year, or a hundred. Obviously, if it flies a hundred times a year, that will mean the overhead costs, divided by a hundred, thus meaning much less cost per ticket than if it only flew ten times a year.
So that's the initial market, which might bottom out at maybe $80,000 per seat. But flying 52 times a year, as Galactic say they intend to first up, and with six seats on each spacecraft... that's $480,000 revenue per flight... what, about $24 million a year, per spaceship? If they've two, that's $48 million etc. Obviously, if they could fly each ship twice a week instead of once, they'd double that. So here's the challenge thrown out to all the rocket developers out there -- make improved engines that can fly more frequently without sacrificing safety (say, once a day) and Galactic will happily buy your engine, because you'll be making them money. With promise of such a payoff, there's suddenly big incentive for new developments in engine technology. Ditto any other technologies out there that would make them money. Probably you'll have Spaceship Two Mark Two, and Mark Three, etc, as engines, heat shielding, avionics etc are upgraded... just like the latest Boeing 737s are so much more advanced than the first models, and for the same reasons of economic pressures.
Then there's the competition -- Rocketplane, Space Adventures, Blue Origin, etc. Once the market is established, no doubt there'll be others. Obviously, the company with the cheapest price will have an edge... not always THE edge, because there's more than just price at play here (I reckon if someone was offering rides to space for a buck fifty he wouldn't get many takers) but among reputable players, it will matter. From there, it's just the same old game of supply and demand. The price will hold up until there's more supply than demand (lots of operators, flying lots of spacecraft) and then the price will start coming down, and operators will be howling for new technology to let them fly more frequently, thus boosting their overall revenue as their revenue-per-seat declines. More frequent flights means more revenue, and declining prices mean more and more people can afford to fly. As the industry gets bigger, the economies of scale will increase, greater revenues will attract more and more money into technology investment, and soon enough you'll have people investing huge amounts of money in seriously reusable technologies -- stuff that could certainly be useful for orbital flight too.
At $100,000 per seat, I'd guess maybe one percent of the western population could afford to fly. If that came down to $15,000, maybe ten percent could afford it. Ten percent of America's population is 27 million people. And from there, it wouldn't take a genius to see same economic model would apply to orbital spaceflight too... and so the investment would start.
I don't think so. Richard Branson has been saying that the latest price is for 'premium seats', meaning (I think) the first two hundred or so tickets sold. In other words, he's charging extra for the privilege of being among the first passengers, for the name-in-the-history-books thing. This is just sensible economics -- in other words, charge what the market will allow. Why ask a hundred grand from people willing to pay two hundred? It would also help pay off Virgin Galactic's overhead faster, and put the company in the black more quickly.
So how quickly could the prices come down, and where could they finish? Obviously it's impossible to predict precisely, but it's worth examining all the input costs to consider how fast it could decline. Firstly, there's the cost of the spacecraft itself. Let's just say that Spaceship Two, as it's being called, ends up costing somewhere in the vicinity of $30 million each. How much of that you pay in each ticket depends on how many times each vehicle flies. If you fly it once, then throw it away (as has constituted orbital spaceflight thus far) then your ticket will cost you all of that $30 million (divided by the number of seats on the spacecraft), plus extras. Virgin Galactic is much cheaper because Spaceship Two is reusable, so it's $30 million divided by the number of times it flies. The more it flies, the less that initial expenditure cost will show up in the ticket price. This is how airlines today can afford so many expensive aircraft -- they spend more time in the air, making money, than on the ground. Needless to say, if NASA ran an airline, it would fly each aircraft once, then throw it away, so your average ticket would cost a few million dollars.
Then there's fuel. My understanding is that fuel isn't actually that expensive on Spaceship Two (it's rubber and laughing gas) and will probably get cheaper as their flight-frequency increases, allowing them to order in bulk. Mass production makes everything cheaper -- witness every piece of consumer electronics ever to achieve success. That's because similar overheads can be employed to create much larger volumes of product. The same applies to space tourism operations -- Virgin Galactic will have spaceport fees, various licensing fees, engineers, pilots and staff to pay, catering and hospitality for its customers, etc. Much of this cost will remain constant, whether they fly ten times a year, or a hundred. Obviously, if it flies a hundred times a year, that will mean the overhead costs, divided by a hundred, thus meaning much less cost per ticket than if it only flew ten times a year.
So that's the initial market, which might bottom out at maybe $80,000 per seat. But flying 52 times a year, as Galactic say they intend to first up, and with six seats on each spacecraft... that's $480,000 revenue per flight... what, about $24 million a year, per spaceship? If they've two, that's $48 million etc. Obviously, if they could fly each ship twice a week instead of once, they'd double that. So here's the challenge thrown out to all the rocket developers out there -- make improved engines that can fly more frequently without sacrificing safety (say, once a day) and Galactic will happily buy your engine, because you'll be making them money. With promise of such a payoff, there's suddenly big incentive for new developments in engine technology. Ditto any other technologies out there that would make them money. Probably you'll have Spaceship Two Mark Two, and Mark Three, etc, as engines, heat shielding, avionics etc are upgraded... just like the latest Boeing 737s are so much more advanced than the first models, and for the same reasons of economic pressures.
Then there's the competition -- Rocketplane, Space Adventures, Blue Origin, etc. Once the market is established, no doubt there'll be others. Obviously, the company with the cheapest price will have an edge... not always THE edge, because there's more than just price at play here (I reckon if someone was offering rides to space for a buck fifty he wouldn't get many takers) but among reputable players, it will matter. From there, it's just the same old game of supply and demand. The price will hold up until there's more supply than demand (lots of operators, flying lots of spacecraft) and then the price will start coming down, and operators will be howling for new technology to let them fly more frequently, thus boosting their overall revenue as their revenue-per-seat declines. More frequent flights means more revenue, and declining prices mean more and more people can afford to fly. As the industry gets bigger, the economies of scale will increase, greater revenues will attract more and more money into technology investment, and soon enough you'll have people investing huge amounts of money in seriously reusable technologies -- stuff that could certainly be useful for orbital flight too.
At $100,000 per seat, I'd guess maybe one percent of the western population could afford to fly. If that came down to $15,000, maybe ten percent could afford it. Ten percent of America's population is 27 million people. And from there, it wouldn't take a genius to see same economic model would apply to orbital spaceflight too... and so the investment would start.
0 Comments:
Post a Comment
<< Home