Quora Question: Will SpaceX Rockets Cut Cost of Space Travel?

SpaceX launch
A SpaceX Falcon 9 rocket blasts off from Cape Canaveral, Florida, April 8. Reuters

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Answer from Sophia de Tricht, rocket motor design engineer:

Disclaimer: the numbers quoted here are what we in the business call "WAGs." It's a guess. I just pulled numbers down that sounded close to correct and proved my point.

The question is this: Will SpaceX's reusable rockets reduce the cost of space travel for real? Think of it this way: You have two companies launching rockets in direct competition. Say they both charge $70 million per launch to LEO. Say they're both under a 12-launch contract that provides them with a fixed price per launch, let's say $80 million. Say company A develops a way to recover the most expensive part of the rocket (the engines, per launch $4 million in research and development, $750,000 in maintenance and $5.25 million in amortization) and company B just uses a cheaper rocket. Say company B saves $5 million per launch by using a cheaper expendable rocket. But company A loses $2 million per launch by recovering their lower stage and reusing it. Let's also say that the first stage can be reliably reused six times.

So the actual cost to company B for launch is $65 million and for company A it's $72 million when you add in the extra cost of recovery. That's still OK, because the launch contract is for $80 million per launch.

Initial conditions are set, let's hit play. Analysis provided below when there's something worth mentioning.

  • Launch 1 profits

Company A: $8 million; Company B: $15 million
Analysis: Company B, non-recoverable, seems to be ahead right now. Their cheaper disposable rockets seem to be a good, solid business choice.

  • Launch 2 profits

Company A: $ 24.34 million; Company B: $30 million
Analysis: What happened? Well, the collected costs of building a new set of engines they didn't have to pay for, $10 million, plus the $8 million in added profit on their originally $72 million launch, minus an amortization fee of $1.665 million per launch...

  • Launch 3 profits

Company A: $40.67 million; Company B: $45 million
Analysis: Company A's first stage is only halfway through its life cycle, and it's already set to massively overtake company B's cheapo throw-away rocket. It's definitely competitive flop-sweat time for company B.

  • Launch 4 profits

Company A: $57.01 million; Company B: $60 million
Analysis: Company A is still going strong. On that single, first stage they saved $10 million (well, $9.335 million. More on that later) not buying for every launch. They've closed a $7 million dollar gap and will be overtaking in the next couple of launches.

  • Launch 5 profits

Company A: $73.34 million; Company B: $75 million

  • Launch 6 profits

Company A: $89.68 million; Company B: $90 million
Analysis: Break-even point for company A. Not only is this the last flight of their original first stage, but it's also the point where they overtake the competition in profits.

  • Launch 7 profits

Company A: $106 million ; Company B: $105 million
Analysis: It may at first seem like company A's profits should flatline here because of having to buy a new engine, but remember, they've been amortizing the cost of a new engine by taking $1.665 million out of the last six launches. So the actual cost out of this launch to build the engine is a measly $10,000. No big deal. Now company A has a new first stage good for another six launches and a steady linear profit lead over company B.

  • Launch 8 profits

Company A: $124 million; Company B: $120 million
Analysis: There's no need to amortize the cost of another engine for this contract, as this engine will carry the rocket through the remainder of the contract.

  • Launch 9 profits

Company A: $142 million; Company B: $135 million

  • Launch 10 profits

Company A: $160 million; Company B: $150 million

  • Launch 11 profits

Company A: $178 million; Company B: $165 million

  • Launch 12—end of contract profits

Company A: $196 million; Company B: $180 million

Final analysis: the initial difference in launch profits to the company were $7 million in favor of company B's more expedient, more immediately inexpensive solution. However in the long run, company A's reusable engine made $16 million more for company A than the throw-away.

So it's obviously profitable. No doubt about that. How does that, though, translate into lowered cost of access to space? Moxie and a cutthroat attitude, that's how!

So take that $16 million that the contracting party gladly gave you for 12 launches. That's $1.3 million per launch that you can save without even tightening your belt corporate belt. Let's say just to round up to an even number, you find another $700,000 in costs you can eliminate without really hurting your bottom line. So instead of contracting launch services for $80 million per launch (nearly $1 billion in contracted services), you could bring it down to $78 million. That's a savings of $24 million over the contract period. Now you've got the low bid on single-award contracts, which means you'll get them, and your competitor won't. So company B has to find a way to stay competitive.

Problem is, as long as the quality of service is the same or similar enough (in the case of launch services, this generally means "how many times you've blown up a rocket compared to your competitor"), the only way to do that is to trim the fat and bring your prices down to match. So in not too terribly long, that same contract industry-wide theoretically goes for a $78 million bid across the board. Nobody can ask for $80 anymore because there are so many vendors that offer the same service for less.

Theoretically, that's how it works.

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