20 years ago, the first ‘tourist’ space flight was launched. This highlighted the potential of this emerging industry. Today, companies such as Axiom Space are charging approximately $55 million for a 10-day orbital flight, which shows that this experience is not for everyone to afford. 

What is space tourism?

Space tourism is human space travel for recreational or leisure purposes and can be broken down into different subsections such as orbital, suborbital and lunar space tourism, all ranging in costs, availability and choice of services. The current estimated revenue of the entire orbital space tourism and travel market, centred around developing a form of tourism around & into the Earth's orbit, amounted to approximately $385 million in the year 2021, however it was forecasted to reach roughly $555 million by 2030. This earns space travel the title of a growth industry^[i] and has one of the largest research and development sectors of the globe, having a yearly investment of $788 million. Some of the major firms within this industry include Virgin Galactic, Blue Origin, Axiom Space, Boeing, SpaceX and Space Perspective, which form an oligopoly due to the extremely high barriers to entry. There are obvious high upfront costs in the equipment, and the firms are always competing in their research and development, meaning there is a mix of natural & artificial barriers to entry.  The largest firm currently is Virgin Galactic, with its shares worth approximately $150.3 million, sold at prices between $26.85 and $28.73 per share. It's part of the conglomerate^[ii] that forms the Virgin Group.

How profitable is space tourism?

These firms can draw in millions per launch, with the income coming straight from the price of flight for the consumer, ranging from the hundreds of thousands to millions per flight. To the ordinary person, commercial space travel may seem unrealistic, but to some, they can’t wait for the few well-funded space companies to creak into action, with billionaire Jeff Bezos at the helm. Bezos has announced that a passenger flying with his own aerospace company, Blue Origin, will pay between $200,000 and $300,000 for a ticket – comparable to Virgin Galactic’s proposed price of $250,000, which has dropped since Virgins first proposal, most likely due to their lower average costs^[iii] due to their increased size causing economies of scale. Consumers can now experience weightlessness for three to six minutes and enjoy unparalleled views of the stars and the curvature of the Earth.

However, this phenomenon of an industry does have its drawbacks, and they are expensive. Billionaire Jeff Bezos reportedly liquidates^[iv] roughly $1 billion per year to fund his company Blue Origin, and the cost of the company’s New Glenn rocket alone was $2.5 billion. The cost of the New Shepard, an earlier development built over the course of a decade, was likely the same or even higher. It’s proposed to take six commercial tourists, yet only six customers a flight each paying $300,000 adds up to $1.8 million for Blue Origin, which barely scratches the surface of the average costs for the flight. This would mean Blue Origin, and most other aerospace tourism firms will make a loss on each flight, unless they massively drive up the prices which would decrease consumer surplus^[v]. The firms themselves usually have large funding, often founded by billionaires or TNCs^[vi] worth billions, so losses in the millions can be taken in the short run, however in the long run if the total costs are not lowered, or if the revenue isn’t up to mark, there may be a drop in the number of firms within in the market. This would be bad for the industry, as it causes less innovation as well as less competition, driving up X-inefficiency^[vii] and the risk of firms abusing monopoly power^[viii].

Can these firms survive in the long run?

Despite these barriers to profit, referred to as a financial black hole, we are still in the early stages of this industry and what it can become, with most of these companies like SpaceX and Blue Origin only coming around in the early 2000s. The advancements in technology of designing and operating reusable rockets have already reduced launch costs. Bezos’ take-offs may cost tens of millions, yet it has developed from single-use rockets that would have cost hundreds of million per launch. There are also developments in how many passengers can take flight per launch, allowing for more revenue to be earned per launch, driving up total revenue. Technology is still developing, and the relevant companies are maintaining a healthy mixture of competition and collaboration, so there is no reason why a financially sustainable market might not emerge in the future.

Footnotes:

[i] Growth Industry - Industry that experiences a higher-than-average growth rate in comparison with other industries.

[ii] Conglomerate - A corporation that is made up of separate individual businesses.

[iii] Average cost - The cost to produce a unit of a good/service.

[iv] Liquidate - To wind up the affairs of a business.

[v] Consumer surplus - When the price of a good is less than the price some consumers are willing to purchase the good at.

[vi] TNCs - Transnational (International) Corporations such as McDonalds.

[vii] X-inefficiency - When average costs are higher than they would be if the market was more contestable.

[viii] Monopoly power - When a firm has 25%+ market share.

Bibliography:

Exclusive: Jeff Bezos plans to charge at least $200,000 for space rides - sources | Reuters

Ticket Price for Private Spaceflights on Virgin Galactic's SpaceShipTwo Going Up - Space.com

Jeff Bezos Reveals Cost of Blue Origin's New Glenn Rocket: $2.5 Billion - Inverse

Jeff Bezos most important project isn't amazon - Businessinsider