Answered: Questions Read the extract about space…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Questions Read the extract about space tourism from an Economist article below. Please answer the following questions: 1) Assess the cost-structure of the Virgin Galactic or Blue Origin ventures; and the strategic implications of this type of cost structure. (25 marks) 2) Identify the market structure of the Space Tourism industry and the main dimensions of competition and options Virgin Galactic may have to increase its market share, including what pricing strategies the firms do or should apply. (25 marks) 3) Please discuss whether and how managerial theories may apply to Virgin Galactic or Blue Origin? (25 marks) 4) Discuss and evaluate the potential expansion strategies available for Virgin Galactic. (25 marks) **** Will Sir Richard Branson’s Virgin Galactic jaunt boost space tourism? “IT WILL BE humbling. It will be spiritual.” This is how Virgin Galactic wooed customers with the prospect of a moment in space in 2004. Within five years, the space-tourism firm claimed, it would take a total of over 3,000 passengers on life-changing jaunts in its spaceships. On July 11th, after a last 90-minute delay, Virgin Galactic finally began to make good on that promise. Its VSS Unity rocket plane was released from a support aircraft, fired up an engine that accelerated it to three times the speed of sound and soared 85km above Earth’s surface. Thence, for four minutes, its six temporarily weightless passengers, including the firm’s British co-founder, Sir Richard Branson, beheld the planet’s curvature against the blackness of outer space, before returning to a spaceport in New Mexico. It is unknown if Sir Richard, not famous for humility, felt any up there. Back on the ground he called the experience “magical”. Inwardly he may have gloated a bit, having just pipped Jeff Bezos, a fellow (much wealthier) billionaire to the heavens. On July 20th Amazon’s recently retired boss plans to go slightly higher, for slightly less time, in the New Shepard, a vertical-launch vehicle built by his own spacefaring company, Blue Origin. The tycoons are among a growing group of enthusiasts who believe space tourism’s time has come. A handful of paying customers have flown in government-issue Russian spacecraft. Virgin Galactic and Blue Origin, by contrast, designed and built their own vessels for the purpose of lobbing passengers beyond the upper reaches of Earth’s atmosphere. “For the first time, we have large, well-funded firms devoted to developing space tourism at scale,” says Matthew Weinzierl of Harvard Business School. Space tourism, UBS thinks, will make “a big contribution” to that total if it proves a stepping stone to replacing mass long-haul aviation with hypersonic travel. That is highly unlikely. For now Blue Origin and Virgin Galactic will offer brief suborbital flights. Sir Richard floated slightly below the Kármán line, usually defined as 100km (62 miles) above Earth’s surface, where air becomes too thin to sustain unpowered flight. If all goes to plan, Mr Bezos will float a bit above it (a distinction that Blue Origin has, unsportingly, repeatedly highlighted on Twitter). Suborbital space tourism is not even Blue Origin’s main goal. The company is focused on developing a large new rocket, the New Glenn, for launching satellites, on selling advanced rocket engines to other companies and on bidding on NASA contracts such as that for a system to land humans on the Moon. In the long run Mr Bezos sees Blue Origin as fostering the development of a large-scale space-based economy rather than offering services to thrill-seekers. That is not to say that Blue Origin’s bigger rockets will not, someday, take paying customers who want to go to orbit for fun. SpaceX, though not driven by the tourist market, is beginning to earn some money from it as a sideline. It is making seats on the Crew Dragon capsules which it uses to deliver astronauts to the International Space Station (ISS) available to private citizens by way of a company called Axiom Space, which has an agreement with NASA to send its first tourist to the ISS next year. Before that the Inspiration4 mission, paid for by Jared Isaacman, who runs a payments company, will see Mr Isaacman and three companions orbit the Earth in a Crew Dragon without visiting the ISS. Even suborbital jaunts have an appeal, apparently. Nearly 7,600 people bid to accompany Mr Bezos on his flight. The (still-anonymous) winner coughed up $28m. Virgin Galactic says it has a waiting list of several hundred willing travellers (which according to Sir Richard includes Elon Musk, SpaceX’s boss). A survey by Cowen, an investment bank, found nearly two in five people with a net worth of over $5m would consider paying $250,000, Virgin Galactic’s current price, for a ticket. Given some 2m such Earthlings, according to Capgemini, a consultancy, that amounts to a decent-sized market.

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