Space tourism industry Forecast 2018 - Aalto€¦ · Space travel. Space travel is defined as any...

Space tourism industry

Forecast 2018

© Space Travel Consultants International (STCI) Ltd. 2018

A WAGNER Research Company, Isle of Man, U.K.

Price: 55000£ + VAT

Image credits: NASA

© Space Travel Consultants International, Ltd. 2018 While every effort has been taken to guarantee the accurateness of the information in this document, STCI cannot be held responsible for

inaccuracies in this report nor can STCI be held liable for financial or other losses resulting from following the guidance provided in this document.

2

Foreword Space, that final frontier, is now being conquered by a growing number of enterprises offering space travel

for a new generation of tourists.

Space Travel Consultants International (STCI) is the leading Space Tourism Industry observer. STCI has

compiled this report to help companies enter into and succeed in this exciting new market.

This report focuses on the markets and the OPEX (Operating Costs) of space tourisms. With this most

recent version of the report, we will also discuss cash flow management1 and financing options available to

companies operating in the industry.

The global space tourism market has evolved into a number of regional markets, each with its own

characteristics. In this report we have divided the overall market into these regional markets:

- Europe, Middle-East and Africa (EMEA)

- The Americas (U.S., Canada, Latin America)

- Asia-Pacific (APAC, China, India, Japan, Korea, South-East Asia)

Definitions Space. According to Star Trek, space is the final frontier. According to the Fédération Aéronautique

Internationale, space starts at an altitude of 100 km above the surface of the earth. This is the Kármán line

where atmospheric lift no longer supports a flying object. In this report we use the latter definition.

Space travel. Space travel is defined as any flight operation that takes one or more passengers beyond the

altitude of 100 km and thus into space.

Space tourism (leisure space travel) is space travel that is:

Financed by the passengers, not by government agencies or similar public, tax financed

organizations

Does not have a specific scientific or commercial purpose beyond reaching space.

Space mission. One trip into space.

Launch. Sending a space vehicle of a certain make and with a specific capacity on a space mission.

Service level: the various grades of a core service, such as a space mission, including issues such as waiting

and delivery times, personal attention and advice, amenities, and facilities.

Quality assurance (QA) is the planned and systematic activities implemented in a quality system so that

quality requirements for a product or service will be fulfilled. QA aims at preventing high-risk adverse

events, or reducing their impact.

Customer satisfaction is a measure of how products and services meet or surpass customer expectations.

Customer satisfaction is also always evaluated in relationship to the price of the product or service.

1 The focus of the discussion will be on ensuring sufficient working capital for companies operating in this industry,

long term investment and CAPEX will not be discussed.



3

Forecast context

The first self-paying tourist in space was the American Dennis Tito, who in 2001 paid 20 million US$ for an

8-day trip to the International Space Station with a Soyuz TM-32 rocket. The first commercial trials in sub-

orbital space travel to fly beyond the Kármán line were conducted in 2011 by Virgin Atlantic and 2012 by

SpaceX. Despite some catastrophic accidents these initial tests demonstrated that the concept of

commercial high-volume space tourism was technically feasible.

At the same time, the financial problems faced by the US government resulted in significant budget cuts for

NASA and the demand for scientific space travel fell dramatically. A 2010 report from the Federal Aviation

Administration predicted that space tourism could become a billion-dollar market within 20 years.

Virgin Galactic http://www.virgingalactic.com/ has, as of 2014 sold 700 tickets worth $250,000 each. This

has created an awareness of the market potential of space travel for consumers. Most companies in the

space industry have refocused to the consumer market, which has rapidly taken off.

Experience Travel Boom Driving Space Travel Growth

Chris Hadfield enjoying a view of space. Image: NASA

The travel industry as a whole is going through a rapid transformation. There is a growing segment of

travelers for whom the primary goal is to have some kind of extreme experience. Part of this customer

segment is now interested in space travel.

Due to the rigorous pre-flight checks and training, space travel has also become popular with a market

segment obsessed with fitness and extreme experiences. It seems that these customers view space travel

http://en.wikipedia.org/wiki/Federal_Aviation_Administration

http://en.wikipedia.org/wiki/Federal_Aviation_Administration

http://www.virgingalactic.com/



4

as the ultimate showcase for health, even though a majority of the population can pass the pre-flight

medical and other tests.

In general, the expectations of future space passengers include the following customer value elements:

- viewing space and the earth;

- experiencing weightlessness and being able to float freely in zero gravity;

- experiencing pre-flight astronaut training and related sensations;

- communicating from space to significant others;

- being able to discuss the adventure in an informed way;

- having astronaut-like documentation and memorabilia.

These objectives need to be combined with—sometimes conflicting—constraints such as guaranteed safe

return, limited training time, reasonable comfort, and minimum medical restrictions.

A space travel operator must pay attention to the total customer experience over the entire customer

process, starting from how the service is presented, proposed and sold. The service package must include

training, instructions, medical check-ups and other preparations, travel to the launch site, and various post-

travel activities to generate maximum customer satisfaction and brand –building opportunities.

Global Elite Going for New Experiences

Despite that fact that the total cost of a trip into space is rapidly coming down from the initial price level of

about $ 600 000, it is obvious that the customer base is going to be rather small. Typical customers tend to

belong to the top of the top 1% income bracket.

As the price comes down, it is expected that new customer groups will enter the market. Typical new

customers include people in other income brackets with one-of-a-kind incomes, such as inheritance or

businesses sold. There are indications that these types of customers are becoming interested in spending

on an once-in-a-lifetime space experience. Therefore the growth of the space tourism market is highly

sensitive to customer satisfaction and how it is communicated through various media. This will establish

the status-factor of space tourism, and corresponding brand reputation of service providers. We therefore

suggest that any operator monitors customer satisfaction closely, as it will help developing increasingly

accurate estimates of how the market will develop.

The minimum price goal for a viable space tourism business is currently estimate to be below $3-4000/kg

for a round-trip depending on vehicle configuration and operation size. At this price we estimate that

somewhat over 1‰ of the high income earners are potential customers.

For significant volume growth the longer term goal should be below $2000/kg for a typical passenger,

baggage, and supplies. The lower price will probably open space tourism to a broader population,

expanding the customer base and altering expectations. Beyond this point space tourism will turn into a

commodity, price competition will ensue, and service providers need to rethink their marketing and

branding strategies.

To attract the potential customers, space operators need to pay special attention to the right level of

customer services. Various preparatory Customer operations costs, such a travel to the launch site,



5

accommodation, pre-flight training, medical check-ups and equipment may add up to between 10-25% of

the actual space travel cost. Finding the right balance between services offered and cost of customer

operations is one of the main challenges of successful operations.

We expect there to be significant opportunities to control these costs through various business network

arrangements. Customer operations cost need however to be carefully gauged as they have had a

significant impact on customer satisfaction and buying preferences.

The Sales and marketing of space tourism is based on high level personal selling and therefore the overall

costs of sales and marketing are high.

New Space Technologies Stimulate Markets and Add Choice

Image credit: Creative Commons Attribution-ShareAlike 3.0 Unported image by Julio Perez Suarez, via Wikimedia Commons. Today there are a number of space flight Ground operators that provide the basic travel infrastructure. The

Ground operations companies partner with Space vehicle providers to create the complete launch

capabilities. Together the companies need to secure sufficient launch capacity to meet demand.

Ground operations and the space vehicle together form the biggest cost component of space flights and

can together account for about 65-75% of the total cost of a single launch, of which fixed costs typically

account for about 65-70% of the total cost when operating at full capacity.

A number of Space vehicle options exist in the market, mainly differing based on the seat capacity as well

as the in-flight experience level offered. The typical Space vehicle solution is a small, relatively lightweight

spacecraft taking between 2-10 passengers. The number of passengers depends on the service level,

https://creativecommons.org/licenses/by-sa/3.0/deed.en



6

amenities and extras offered. The trip typically lasts about 10 hours out of which about 4 hours are spent in

space. The main attraction is the weightless time after re-entry has started. It is a rather low-G technology

and therefore the medical requirements for participants are not very high.

For space vehicle and ground operations technologies we expect significant learning –curve effects, i.e. the

fixed cost per launch will come down significantly as the cumulative number of launches increases.

Focus on regional co-operation and short supply chains

The space tourism operations require significant co-operation between co-operating companies. Proximity

of companies also leads to short supply chains which is important to ensure high quality and safety of all

operations. Furthermore, sales and marketing as well as customer operations must be tailored to suit local

customer expectations.

This has led to a trend where companies establish local offices close to each other in those regions where

they plan to operate. Expanding into new markets requires significant initial investment in setting up a new

facility in the new market. The table below shows the cost of typical expansion (based on 2016 costs). As

more and more businesses expand into new markets, it is expected that these costs will grow significantly

over the next couple of years.

EMEA Americas APAC

Expansion cost $ 10 000 000 $ 8 000 000 $ 4 000 000

Table 1: Typical expansion costs for establishing a presence in a new market (2016 numbers)

Several Risks Remain

While space missions have been technically possible for over a half-century, commercial, high-volume

space flights are still subject to significant technical risks. Therefore a space tourism operator needs to pay

sufficient attention and make the proper investments into safety and quality assurance. Vehicle reliabilities

must approach those of commercial aircraft as closely as possible. For high risk operations, the fixed quality

costs could even be a as high as 15-20% of total launch costs. For less critical operations, the quality costs

will be significantly lower.

The adverse events are, in ascending order of severity and cost are:

- postponement of launch

- cancellation of launch

- abortion of flight

- damage to persons and/or property

- loss of life and/or vehicle.

Adverse events will have a negative effect on customer satisfaction. As they most probably will be widely

reported in media, and may inflict environmental hazards, incidents will seriously damage the reputation

and economic position of a space tourism provider. IN addition accidents will negatively impact the whole

industry.



7

In addition, commercial tourism implies there will be customer –induced variation, such as unexpected

medical and other personal problems, lack of compliance to safety regulations, and varying perceptions and

preferences. We therefore recommend that a space tourism provider:

- assures that all customers are properly insured and instructed,

- restricts its maximum liabilities

- gets proper insurance coverage, amended by

- sufficient investment in quality assurance and risk management (QA & RM).

The major commercial risks involved are associated with perishable launch capacity in relation to actual

sales. Therefore due attention should be paid to balancing demand and supply.

Financing operations

As the volume of space tourism has grown rather rapidly, financing of the growth has become a critical

issue for all companies involved in the business. Early stage investors have provided sufficient long term

capital investments into the companies. As a result of this, the focus of finance operations are on the short

and medium time frames where special attention must be put on cash flow management to ensure that the

companies have sufficient working capital for on-going operations as well as future expansions.

Due to the high risks still involved in space tourism, suppliers and partners still expect advance payments

for fixed, non-recoverable fixed costs. This means that a typical company in the space tourism industry

needs to have secured working capital equivalent to one year of fixed costs in order to avoid running out of

working capital during the year.

Currently there are a couple of sources of financing available for companies operating in the space tourism

industry.

VC investment

Normally venture capitalists do not finance operations of companies, but the very positive forecasts for the

industry have resulted in some VC money also being used also for financing short term running costs.

Typically VC financing can be obtained at levels of about 5-50% of companies own working capital, however

only companies with above average business outlook expectations can expect this kind of financing.

When making investment decisions, venture capitalists are mainly looking for some key information:

- As the space tourism industry is typically built around a number of co-operating companies, a

company seeking VC money must demonstrate good understanding of the value the company

creates for both their partners as well as the actual space customer.

- As the global space tourism industry consists of a number of different markets, the company needs

to have a clear and well justified market (entry) and pricing strategy.

- The business needs to be backed up by a positive cash flow estimates as demonstrated with well-

justified market analysis.



8

Image credits: NASA

Loans

If a company has not been able to obtain sufficient funding via investments, the other financing instrument

that can be used is bank loans. There are a few major investment banks that offer loans to companies in

the space tourism business.

Loans are seen as very short term financing tools, and the banks expect the loans to be paid back by 2021

the latest. This is because there are indications that new space tourism regulation is expected in 2022 and

the economic impact of this regulation is still unknown. This means that loan payback times are between 1-

4 years.

While payback times are very short, the interest rates are still quite reasonable (see table 1 below) but with

differences between lending markets. The reasonable interest rate has been maintained due to the good

safety record of the industry. Any industry-wide problems are expected to reflect negatively on the price of

financing, one more reason for the industry as a whole to strive to maintain the good safety track record.

EMEA Americas APAC

Interest rate 3% 2% 5%

Table 2: Typical interest rates for loans obtained by space tourism companies (2016 numbers)



9

Space Tourism Industry Forecast 2018-2021

Image credits: European Space Agency

Even though space tourism is by nature a global business, customer expectations in each market are still

rather different. Due to the differences in the markets, space tourism operators have been able to offer

differentiated services and price points in the regional markets, with some markets seeing price levels that

can be almost twice the level of other markets. Occasional promotional deals at around 200 000$/trip have

been seen but these have not yet had an impact on general price levels. The special deals have however

increased the price awareness of customers and overpricing seems to have a significant effect on customer

satisfaction.

We expect the total industry sales worldwide in 2018 for the first time to reach above US$ 2 billion.

Passenger Volume Predictions by Region

We estimate that the average annual passenger growth 2018 – 2021 to be 10 % but there are indicators

that suggest that different market segments will develop at different rates. Since the introduction of space

tourism, price levels have been going down and we expect this trend to continue also over the prediction

period.



10

Space tourism markets, in terms of regional passenger volumes, will in 2018 be divided as illustrated in

Table 2. The total global market is expected to exceed 10 000 customers by 2020.

EMEA Americas APAC

% of global market

5-15% 40-50% 25-40%

Market growth

< 20%/a >5%/a > 10%/a

Table 2: Space Tourism Market Passenger Volumes by Region, Estimate for 2018

Business outlook by regions

After a few initial years of high growth, there are signs that the markets are reaching a level of stabilization.

Different market segments are however still developing in different directions. Innovative new services and

pricing policies are needed to maintain the current levels of growth in all space tourism segments.

APAC outlook

The APAC market is the most recent market but has seen significant initial growth and is now the second

biggest single market globally. The APC market poses a number of challenges for companies operating in

the market. The language and cultural characteristics of the region have proved to be a marketing

challenge and companies wanting to succeed in the APAC market have had to invest significantly into the

quality of local language marketing.

The APAC market is very much based on recommendations from peers and therefore maintaining long term

customer satisfaction is a key element of a successful sales and marketing strategy as bad customer reviews

can easily create long term problems of companies addressing this market.

Americas outlook

Space tourism was born in the US market and the Americas is therefore the biggest and most mature space

tourism market. As most of the space tourism initial development took place in the Americas, it was not

surprising that it initially saw the fastest growth. The downside of this is that the Americas market has also

been the first to show signs of commoditization. This has put pressure on the pricing while on the other

hand having a positive impact on volumes. However, positive market growth in the Americas will require

careful pricing and a cost structure suitable for a volume market.

As the Americas market already is quite saturated, find a the appropriate service level for a volume market

and active market making by a dominant market player could prove decisive in setting a new direction for

this market.

EMEA outlook

EMEA was one of the initial high-growth regions of space tourism. The high status value among the very

rich in the region was driving the initial uptake. As space tourism has become a bit more commonplace, it

has lost some of the status value and therefore has become less interesting to customers from the EMEA

market. While market growth potential still exists, successful EMEA operations need to refocus. Initial



11

customer focus group interviews and studies have indicated that an increased focus on specialized

customer experiences could be one way to address the slow growth of the EMEA market.

Key guidance Based on our study we offer the following key guidance for companies operating in the space tourism

markets.

Choice of service concept and service level. A critical success factor for all space tourism operators is to find

the right service concept and service level for each segment and region. Activities need to be bundled into

proper offerings that, simultaneously consider customer expectations, and allow standardization and

routinization for cost efficiency.

Choice of space technology. Current space technologies span both a wide price range and a wide range of

space activities and experiences. Every space tourism operation must match the optimal space technology

with the selected service concept.

Choice of markets to address. Due to the high cost of space travel, the customer base is very thinly spread

across the globe. Choosing the right markets to address is critical in order to get enough customers to reach

a sufficient utilization level. However the competitive situation in some markets is already challenging and

therefore market choices need to take also the competitive environment into consideration.

Choice of partners. Players in the space tourism business should focus on their own competence area and

find partners to complement them in other domains.

Optimal pricing. Setting the price properly is a key business decision. The selling price of a space trip will

obviously affect the number of customers. However, the price must also reflect the proper investments in

service levels, QA, and other discretional variable costs; as well as enable a sufficient profit to cover the

very significant capital investments.

Ensuring short term financing and sufficient working capital. As the requirements for working capital for the

companies will be very high, careful cash flow and working capital management is required. Too low

working capital will significantly constrain the possibilities of companies to grow. The cost of additional

financing via loans is high and will therefore have a significant impact on profitability.

Space tourism industry Forecast 2018 - Aalto€¦ · Space travel. Space travel is defined as any...

Documents

Transcript of Space tourism industry Forecast 2018 - Aalto€¦ · Space travel. Space travel is defined as any...