July 15, 2024

Advancing Business Excellence

Pioneering Corporate Success

Virgin Galactic Can Breathe a Sigh of Relief, as Elon Musk’s Space Tourism Business Stumbles

Elon Musk will be able to offer space tourism flights for a fraction of Virgin Galactic’s cost — but not just yet.

It’s official now. Virgin Galactic (SPCE -13.42%) is out of the space tourism business — at least for a while.

On Saturday, June 8, Virgin Galactic’s “Galactic 07” mission successfully took off, briefly visited space, and landed with all passengers safe and sound. This was the company’s seventh revenue-generating commercial flight. Now, Virgin intends to retire its single operational “Unity” spaceplane and pause operations while it builds a pair of new “Delta” spaceplanes to replace it.

As a result, for the next two straight years, not a single Virgin spaceplane will get anywhere near space.

Competitors in the wings

For one of Virgin Galactic’s rivals, Jeff Bezos’ Blue Origin, this is unqualifiedly good news. Blue Origin resumed flying space tourism flights of its own last month, and Unity’s early retirement means that Blue Origin will get to scale its space tourism business for as long as two straight years without worrying about competition from Virgin Galactic.

A second competitor, however, may not be so fortunate.

For the past decade or more, Elon Musk’s SpaceX has built a business on the model of stealing market share from his rivals by building better, more cost-effective rockets and spacecraft and undercutting his rivals on price. Musk has done this in satellite launch, in lunar landers, and in satellite internet already.

Up until last week, he seemed likely to do it in space tourism, too.

Introducing Starship: SpaceX’s space tour bus

SpaceX launched its Super Heavy booster and Starship spacecraft on a fourth and largely successful test flight last week. While the two-part megarocket has some kinks to work out, and SpaceX still envisions multiple test flights before it can carry cargoes — or humans — to space, Starship seems likely to eventually pose a potent threat to both Virgin Galactic and Blue Origin.

The reason is that Musk has designed Starship primarily as a large transport for colonists to Mars. To serve this purpose, Starship was built large enough to carry as many as 100 passengers at a time. What’s more, as a reusable rocket ship, it’s designed to cost as little as $10 million per launch.

It doesn’t take a Ph.D. to do this math. Ten million dollars divided by 100 equals a potential ticket price as low as $100,000 for passengers on a SpaceX space tour bus. That’s less than half of what Virgin Galactic initially charged its customers…and less than 25% of what Virgin charges today.

And for much better space tours.

Unlike Virgin Galactic’s Unity (or Delta) spaceplanes and Blue Origin’s New Shepard rocket ship, Starship is an orbital-class vehicle. As such, it’s going to be able to carry tourists on much longer trips — dayslong orbits of the Earth or trips to the moon and back, for example. In contrast, Virgin Galactic’s and Blue Origin’s suborbital spacecraft can offer at best a couple minutes of weightlessness on the very edge of space before landing back on Earth.

Schadenfreude for SpaceX

Given this risk, Virgin Galactic investors are probably enjoying a bit of schadenfreude over this month’s SpaceX news.

Five years ago, SpaceX scored a space tourism coup when Japanese billionaire Yusaku Maezawa agreed to pay an undisclosed sum to rent an entire SpaceX “Starship” spacecraft, aiming to become the first private astronaut to fly the new vessel on a six-day “dearMoon” trip to the moon and back. At the time, Starship was still very far from ready to fly, but SpaceX told Maezawa (and eight fellow passengers) to expect a 2023 launch date.

In a June 1 post on X, however, Maezawa announced he is canceling the trip and his contract with SpaceX.

Maezawa blamed delays in the flight schedule (which after all, was supposed to depart last year), although several members of his crew have noted they would have been happy to wait as long as needed for Starship to be ready. Other commenters suggest the fact that Maezawa’s net worth falling from $3 billion in 2018 to $1.4 billion today may have had something to do with his decision to back out.

What it means for investors

SpaceX has to be disappointed by this. Investors are disappointed, too. We’ll miss our first chance to learn how much SpaceX might be charging for space tourism trips on Starship, and the chance to compare that ticket price to those of Virgin Galactic and Blue Origin. That would have given us a better idea not only of how far Virgin’s and Blue Origin’s prices might eventually fall, but also a better idea of the value of a future SpaceX IPO.

If there’s any consolation at all, though, at least investors in Virgin Galactic know they have another couple of years before they need to worry about SpaceX taking over the industry that Virgin Galactic created. For that, they can breathe a small sigh of relief.