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A scientific economic estimation

Posted by: Ekkehard Augustin - Sun Dec 05, 2004 6:15 pm
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A scientific economic estimation 
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Post A scientific economic estimation   Posted on: Sun Dec 05, 2004 6:15 pm
Today I randomly detected an article I haven't archived digitally yet. It has been published in the german journal "Wirtschaftswoche" 8th of June this year.

According to that article "Mond statt Mallorca" ("Moon instead of Mallorca") Patrick Collins, Professor of Economics at the japan Azabu-University, is expecting five million tourists per year travelling to the moon beginning in 2030 - if the private space travel industry is growing well.

One ticket to the moon in this case he estimates to cost 20.000$ only - short trips he is estimating to cost less than 10.000$ then.

The question "Utopia?" he is reported to have answered by quoting the quick breakthrough of civil airtravels.

Collins is claiming for private efforts f exploring space since years as the article says.

The article is two pages long and refers to Rutan, Rocketplane, XCOR as well as to Blue Origin, John Carmack and Elon Musk.

Autor of this typical Wirtschaftswoche-article is Matthias Hohensee - he has been reporting from Silicon Valley.



Dipl.-Volkswirt (bdvb) augustin (Political Economist)


Last edited by Ekkehard Augustin on Thu Mar 03, 2005 2:07 pm, edited 2 times in total.



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Post    Posted on: Mon Dec 06, 2004 3:50 pm
WOW! If the cost of a trip to the Moon was only $20,000 I WOULD GO RIGHT AWAY!!!!!!
Unfortunately I think that is Utopia. The cost of a television has not dropped in such a dramatic manner, even with the invention of the transistor. And we do not yet have a technology breakthrough in space flight comparable to the transistor in electronics. Moving space flight from a cost is no object government and military environment to a competitive profit driven commercial environment can reduce costs, but to get a $20,000 trip to the moon we need some dramatic new technology like fusion powered rockets or anti-gravity.


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Post    Posted on: Tue Dec 07, 2004 8:26 am
The key to the result of the scientific estimate will be the number of 5,000,000 tourists per year and the mathematics of economic growth.

5,000,000 tourists will cause huge economies of scale and scope. This aleady can be seen by a look at Virgin Galactic and Rutan's ealier estimations of the price of suborbital flights - it can be seen nebulously only these early days.

Rutan had stated that the current 100,000 $ per flight can be reduced down to 7,000 $ by larger vehicles and a fleet of vehicles - it can be reduced down to 7,000 $ in the longer run which doesn't mean more than a decade.

Branson has said that his initial flights by 5-perons-vehicles up to an altitude of 130 km will cost 200,000 $ but this price will go down to much less than 100,000 $ after several years.

From all this it can be seen - nebulously - that the scale of the vehicle and the amount of flights are the causes of the reduction of costs and prices.

Branson is registering people willing to take a flight and buy a ticket - the last number of people was 7,000. If all these people really will buy a flight Virgin Galactic will have revenues of 1.4 billion $ if the price would be left at 200,000 $ - the revenues still would be 700 million $ if the price would be reduced to 100,000 $. Rutan/Scaled is said to get 100 million $ out of the Branson deal. So there is a margin to allow for reductions of ticket price significantly under 100,000 $ - if all the 7,000 people really will buy a ticket.

The 200,000 $ will be due to very high risk and fast armotization of investment.

I cannot estimate the numbers of economies of scale but 7,000 people is only a little bit more than a promille of the 5,000,000 people estimate for 2030 which is 25 years in the future -huge economies of scale and scope are to be expected.

As soon as I find time for it I will apply financial mathematics and alternatively a very very simple mathematical function of economic growth to calculate the required initial amount of tourists to reach 5,000,000. This will not include economic causalities because that would take too much time.

I understand that it sounds utopic what has been estimated but it is only without "the magic" of eos I suppose.



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Post    Posted on: Tue Dec 07, 2004 3:20 pm
This reminds me of a joke about a car dealer who advertised prices so low that he lost money on every sale. How could he make a profit that way? VOLUME! :lol:

I know economics of scale can reduce costs but this projection seems wildly optimistic to me. After all, we are not talking about scaling up an existing technology. Now if you project 5,000,000 suborbital flights at $7,000 each then that is economy of scale. But going to the moon is new technology that has no cost baseline from which to project, other than Apollo. SS1 technology is woefully inadequate for travel to the moon. After the first private flight to the Moon takes place and the actual costs are known then we are talking about scaling up the technology. Then it changes from an engineering question to an economic question.


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Post    Posted on: Wed Dec 08, 2004 9:07 am
Alright - but recently under www.xprizenews.org there was an article reporting a concept how a touristic flight around the moon may be possible at a price level below that Tito or Shuttleworth did pay for their fligths onboard of Soyuz.

The only well-known costs are that of the Apollo missions - you are right. But Collins may have done a serious investigation of their cost structures. The result may have been that there are large redundancies that could be removed easyly - today at least. Such redundancies several times have been mentioned at this board in the past and Rutan too has stated them.

From this Collins may first have concluded the really necessary costs and then he may have calculated the economies of scale and scope.

The joke may cause misunderstandings or it may be a misunderstanding itself - economies of scale or scope do have to do with prices only a few if at all. They in principle only have to do with costs - they don't guarantee any profits. The hugest economies of scale still can be to low to reduce the costs at a level below the highest price to be got at the market.

SS1-technology really is inadequate for the moon - but economies of scale in the suborbital "industry" seem to increase the market. They seem to reduce the costs below the price that can be got at the market. So there can be gained profits which will be increasing for a while. 25 years until 2030 are sufficient time to use these profites for construction and building orbital vehicles. People like Tito will pay for an orbital flight several millions as we have seen and the number of suborbital flights can crossfinance orbital flights - economies of scope (instead of scale). Look at the number of customers registered at Virgin Galactic - 7,000 - and the initial price of a Virgin Galactic ticket - 200,000. This results in revenues of 1.4 billion - sufficient to allow for the development of an ASP vehicle if the profit would be 100 million at least.

If the first ASP vehicle has won that prize all will repeat at the orbital tourism markets because the cross financing will continue - economies of scope. Suborbital flights will go on at low prices. Orbital flights have a chance to provide economies of scale too. Then there are two sources for crossfinancing - two sources of economies of scope. They will finance vehicles and flights "above LEO".

So a chain or a net of economies may develop over 25 years. The economies will be over-additive.

Additionaly it's not as hard to leave the orbit for the moon as it is to get to the orbit - which applies for the costs too.

All these considerations may be included in Collins' estimation.



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Post    Posted on: Wed Dec 08, 2004 9:16 pm
You make a convincing argument and I hope these projections are right, but I grew up on books like this:
http://sun3.lib.uci.edu/~jsisson/youmoon.htm
and television shows like this:
http://www.aiaa-sf.org/dmtg/04-04.html
and this
http://www.retrofuture.com/spaceage.html
and films like this:
http://www.palantir.net/2001/
and none of it came true and I am REALLY disappointed.
Now the success of the X-prize has started to get my hopes up again, but it will take more that rosy predictions to convince me now. I want to see REAL hardware making REAL flights before I believe again.


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Post    Posted on: Thu Dec 09, 2004 8:53 am
No problem - I only was explaining thoughts probably involved in Collins's estimations.

Please let me add that the numbers of vehicles built are causing eos in spaceport services and production of spacecrafts. The number of fligths is causing eos in production of propellant. And all this too is causing eos furthermore downwards the vertical chain of production - what I explained in my last post merely were eos in the horizontal sortiment of products (flights and vehicles).



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Post    Posted on: Sun Dec 19, 2004 11:42 am
I've had the time to calculate some required growth rates of ticket buyers now to achieve 5 million buyers in 2030. I took 24 years as time for the growth of the number of ticket buyers.

I've calculated four values. The first two are based on the formular "number = number per period * ( ( 1 + growth rate) ^ number of periods - 1 ) / growth rate" - the last two are caculate simply by "e^(growth rate * number of periods)". The growth rate is a rate per month or per double month. I used the 7,000 people registered at Virgin Galctic as the initial number to grow.

1. periods = 300 months, growth rate = 0.5% ==> number of ticket buyers in 2030:= 4850957
2. periods = 150 double months, growth rate = 1.75% ==> number of ticket buyers in 2030 = 4997873
3. periods = 300 months, growth rate = 2.1875% ==> number of ticket buyers in 2030 = 4956277
4. periods = 150 double months, growth rate = 4.375% ==> number of ticket buyers in 2030 = 4956277

So a growth rate of the number of ticket buyers betwenn 0,5% and 5% is sufficient to have around 5 million people buying tickets in 2030 if the market is growing at constant rates per month or per double months.

These are normal and reasonable growth rates - so the estimated number isn't utopic no way.

Note also that under www.xprizenews.org recently has been reported that the number of people registered now is 13,000 - this means that if the number of 7,000 has been reported in October it grew by 85.7142%. This should be considered to be a move of future growth rates down into the presence. The growth rate isn't consatnt yet, cannot be kept at that level for years and will go down slightly. Then the accumulated number of ticket buyers will be very high already. Supposedly the growth rate will go under 0.5% per double month for a while and then again go up to a reasonable level that could be kept in the long run.

The growth will allow for huge reductions of ticket prices - and the article said that Branson could manage to be in the rofit zone after flying 5,000 seats for five years. This means that a huge reduction of ticket prices could be expected after that time.

There is competition to be expected after less than five years - by Blue Origin, SpaceDev and Rocketplane. This too will cause price reductions and growth of demand I think.

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Post    Posted on: Thu Jan 20, 2005 6:23 pm
I accept your projected ticket sale growth rate calculation.

Where is your calculation showing the reduction in ticket cost to $20,000 for a trip to the Moon?


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Post    Posted on: Fri Jan 21, 2005 2:52 pm
I don't have Collins's informations which are required to etsimate that ticket price.

But it would be interested to gather these informations if I had time for it - but this would require to be a professor of Economics like Collins or a german "Rentner" or a verx rich man.

Statistical informations would be easyly to get but they are far to insufficient concerning this topic.

I am thinking about sending an email to Collns.



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Post    Posted on: Fri Jan 21, 2005 7:56 pm
You can book a trip to the south pole for $33,000 at this online site:
http://www.adventure-network.com/subsub ... id=1&id=42
Do you expect me to believe that it will cost LESS to go to the Moon?


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Post    Posted on: Sun Jan 23, 2005 4:41 pm
Yes - the difference is cause simply by the difference in the number of interested people. There easyly will be people to travel to the moon - as can be seen by the fact that Virgin Galactic has registered 13,500 people already for suborbital flights.

The Southpole doesn't be of any interest for those people nor is it for others. Alright - there ARE people interets in a Southpole trip - but not thousands.

It's the very large number that will cause the significant low ticket price to the moon - economies of scale and scope. Ther is and will be a huge market for space trips and moon trips but only a very mall market for Southpole trips.



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Post    Posted on: Sun Jan 23, 2005 10:30 pm
Economies of scale do not apply to technologies that are not even invented yet. After actual trips occur and we know what the technology really costs, then we could make some realistic projections on economies of scale. Until then it is just a guess. And $20,000 within 25 years is a wildly optimistic guess.


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Post    Posted on: Mon Jan 24, 2005 8:34 am
As we all can see currently the private space travel market will be using technologies already invented. Scaled is using them, SpaceX is using them and NASA is using them.

Collins has based his estimations on these technologies and their improvements. The costs of these technolgies are known very well. Collins simply has gathered all the informations about these technolgies and their costs from several sources and filled them in into high sophisticated mathematical and econometrical estimation techniques as a researcher of he is used to.

It's no guess and it's by far no wildly optimistic guess - it's a serious result of a scientific economical estimate.

Look at what has been reported about Burt Rutan - he too estimated future costs of space trips based on the data of SpaceShipOne. Burt Rutan estimated that the flights by upscaled SSO's (5 to 10 seats) will cost less than 10,000 $ after a couple of years. Burt Rutan didn't take into account the potential of the market but based his estimation on SSO only. Taking into account the potential of the market says that the production costs of vehicles - costs of machines to build the vehicle, costs of machines to make the elements of the vehicle and so on - themselves will be reduced too - what necessaryly by logic will cause further reductions of flights too.

Collins estimate doesn't include technologies not in invention yet - but it does include all the links between industries, costs and markets, each stage of production and each line of production relevant for space vehicles.



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Post    Posted on: Mon Jan 24, 2005 1:56 pm
Burt Rutan has not stated $10,000 anywhere I have seen. Before SS1 flew he did state, “ordinary people, for the cost of a luxury cruise, can experience a rocket flight”, but he gave no numbers. After SS1 flew he stated the incremental cost per flight was about $300,000, or $100,000 per seat (including the pilot). The economies of scale that the larger Virgin Galactic craft will enjoy are not yet determined, but let us assume that a 10 times reduction is reasonable. That would be a $10,000 suborbital flight.

Now consider what is known about trips to the Moon. Apollo flights had an incremental cost of a few hundred million dollars per flight, in 1970 dollars. Adjusted for inflation that is probably several billion per flight today. Allow a 10 times reduction for economy of scale and the flights still cost hundreds of millions each. To get a $20,000 flight to the Moon it would take about a 100,000 times reduction in cost. I can’t believe that will happen with current technology in only 25 years.

The SS1 technology must be scaled up to the absolute limit just to have the minimum capability to even get to the Moon. We are not talking about scaling up to do the same small job many times over. We are talking about scaling up to the minimum size to just START doing a much bigger job. After that is done, then it would be reasonable to consider if scaling up even more would result in additional savings.


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