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Space Tourism Price War Begins Before First Flight

By Rich Smith - Oct 19, 2019 at 7:13AM

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And it already looks like Blue Origin is losing.

Jeff Bezos's Blue Origin says its mission is to provide "safe, reliable and frequent access to space ... by lowering the cost of access to space with operationally reusable launch vehicles" -- including its New Shepard reusable suborbital rocketship for space tourism. 

Virgin Galactic has a reusable spaceship of its own: the SpaceShipTwo, a hypersonic spaceplane launched midair from a WhiteKnightTwo airplane mothership. Virgin Galactic has already begun taking reservations, and is publishing a firm price for its tickets -- $250,000.

By contrast, Blue Origin hasn't taken reservations and doesn't have a firm published price for tickets. 

Jeff Bezos in a Blue Origin windbreaker in front of a New Shepard rocket

Image source: Blue Origin.

Who will win this space race?

Given the lead Virgin Galactic has over Blue Origin (in terms of marketing at least), anyone placing odds on which company will succeed in commercializing space tourism on a mass scale first would probably be inclined to favor Virgin. And Blue Origin CEO Bob Smith did nothing to dispel that impression when he spoke at the TechCrunch "Disrupt SF Conference" earlier this month. 

(Remember: Jeff Bezos owns Blue Origin, but is CEO of Amazon.com; Blue Origin is not an Amazon subsidiary, and it has its own CEO.)

Asked how much Blue Origin plans to charge for rocket rides aboard the New Shepard, Smith replied "it's not going to be cheap... it'll be actually in the hundreds of thousands of dollars for people to go, initially," before adding that prices will hopefully shrink over time. That use of the plural -- "hundreds" of thousands -- suggests Blue Origin's price will be more than just a "couple" hundred thousand dollars (a price that might undercut Virgin's ticket price). Indeed, it seems to imply that Blue Origin intends to price its tickets at three or more "hundreds" of thousands of dollars.

Neither company has yet set a firm date for beginning commercial operation, but both appear to be targeting a start date some time in 2020.

What it means for investors

The company that gets to space first, with paying passengers on board -- and brings them back safely -- is probably the best indicator of which of these companies has the best chance of becoming commercially viable. Until one or the other accomplishes that feat, though, both companies are basically limited to attracting customers based on advertised price.

Right now, Virgin Galactic seems to have the advantage on pricing -- and in more ways than one.

If Blue Origin believes it must price its space tourism service in the "hundreds" of thousands of dollars, while Virgin Galactic can turn a profit at a lower price, that's obviously going to make Virgin's services more attractive right out of the gate. But a big initial disparity in prices will also give Virgin wiggle room to raise its prices up to whatever Blue Origin ends up charging, padding Virgin's profit margins even further.

And that extra profit margin could become especially important to Virgin Galactic in the months ahead.

As you may recall, in July Virgin Galactic announced that it will be merging the company into the publicly traded shell corporation Social Capital Hedosophia Holdings (IPOA) to create the world's first publicly traded space tourism company (without having to go through an IPO process). This merger is set to take place sometime in the next couple of months, and once it does Virgin Galactic will become accountable to shareholders for the first time -- shareholders who, presumably, will want to see Virgin Galactic earn a profit at some point.  

The higher the price tag Blue Origin ends up charging, the better the future for Virgin Galactic stock.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool owns shares of Social Capital Hedosophia Holdings. The Motley Fool has a disclosure policy.

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