The fifth session of the Course on “The Business and Economics of Space” was on Tuesday, Nov 16. This session was a Deep Dive into Space Tourism and Exploration. You can find my earlier post on the Deep Dive into Launch and Satellites here.
Space was in the mainstream news this summer with plenty of excitement over Jeff Bezos and Richard Branson becoming “astronauts” as each took short flights to sub-orbital space on their own company’s rockets. This was followed by the Inspiration 4 mission by SpaceX launching a crew of four civilians for a 3 day orbital flight that also served as a fundraiser for St. Jude Children’s Research Hospital. These events kicked off a new era of space travel in which billionaire-backed companies offer high-flying excursions to anyone who can afford it.
Space Tourism, however, has been around a lot longer than that. Dennis Tito was able to visit the ISS as a private citizen in 2001. The trip was conducted by the Russian Space Agency (Roscosmos) and arranged by Space Adventures. This was well before Blue Origin, Virgin Galactic and SpaceX were founded.
How does one commercialize Space Tourism ? We have to look beyond the technology to see what the problem is these companies are trying to solve ; ie what is the customer use case ? The core problem is to figure out what is the job to be done. One of the most famous quotes in marketing comes from HBS Professor Theodore Levitt: “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!”
We can get some idea by looking at the charts below to see the functional jobs that need to be done for a Virgin Galactic flight to space, followed by a chart showing the personal journey each customer gets when they sign up for a flight on VG. Perhaps Space Tourism has more in common with Disney rather than a rocket company ?
It is apparent that what Virgin Galactic is selling is a luxury good item, a premium experience that offers High Net Worth signalling. There are segments of the population that it would appeal to, those into conspicuous consumption and those looking for a unique adventure like going to Antarctica or climbing Mount Everest.
In the previous session we debated the price elasticity of rocket launches, and if demand for them rose as the price declined. Space tourism does not follow a typical demand curve, demand does not go up when the price declines, as it would lose the “snob value”. It is more like a type of good called a “Veblen Good”. Wealthy people by luxury goods for many reasons and will spend a lot of money on what they want. A Space Tourism company needs to be able to fulfill these needs at the highest efficiency to maximize returns.
What then happens if there is democratization and expansion of the space tourism industry , if it moves beyond a bespoke , luxury experience through efficiencies of scale to one that more and more people could afford ? Will the demand curve shift to one more like a business class airline ticket ? Perhaps these flights evolve from tourist hops to rapid continental travel to disrupt that industry.
The other topic we looked at this session was the economics of space exploration. What was the utility of the Space to Earth economy, the Space to Space economy or Earth to Space ? There are examples of each of those that were examined, for example the often touted mining of asteroids . There are potential asteroids that may have resources that might be valued in the trillions of dollars. Finding one and actually being able to extract those resources and bring them back to Earth is a whole different story. What would happen to the market for such scarce precious metals if they were brought back in bulk ? Supply demand curves would indicate that prices would decline.
Perhaps there would be better use cases for mining asteroids, or the Moon or Mars for resources in the Space-Space economy. It is expensive to launch everything required for establishing space stations, Lunar (or Martian) outposts from Earth. Ideally resources for fabrication, for fuel as well as oxygen and water for life could be obtained from these sources.
That assumes that there is an intrinsic utility in establishing such outposts in space. There are those who advocate moving heavy industry to space to avoid polluting the Earth further. Others tout establishing humanity on Mars so be a multi-planetary species to avoid the eventual extinction events of being only on Earth. Space exploration ties into the natural urge of humans to explore new frontiers, and Space is the ultimate frontier.
These were all topics worthy of discussion, especially with the guests we had in the second hour of the Session; retired NASA astronaut Nicole Strott and Blue Origin’s Head of Corporate Strategy Kylie Lucas and Corporate Development, Zach Havanec.
