On July 8, 2019 Virgin Galactic and Social Capital Hedosophia announced a merger, creating the world’s first publicly traded human spaceflight company. Virgin Galactic is planning to operate a space tourism business in the short term, but ARK’s research suggests that the bigger opportunity over the long term is in point-to-point hypersonic travel. While private planes can save passengers significant time on short-haul flights, they fail to do so for long haul flights, an unmet need that hypersonic flight should be able to fill.
Private flights typically offer a luxury service characterized importantly by the time saved to reach small cities. In 2018, private planes accounted for roughly 0.4% of US passenger flights according to the Department of Transportation. As shown below, 77% of those trips covered fewer than 1,500 miles and, according to our research, they saved 50%+ of the time that commercial flights would have taken. While some private flights do cover longer distances, we believe they do not save enough time to make the trips worth the additional cost.
Flights follow a long tail distribution, as shown below. Private flight is suited for the short haul market, while hypersonic flight could solve long haul needs.
In 2018, commercial flights transported roughly 4.5 billion passengers globally, 15% of them longer than 7 hours and candidates for hypersonic travel. If only 0.4% were to default to a private service, the addressable market would be 2.7 million passengers, as shown below.
Based on the economics of the short haul market, ARK estimates that passengers would be willing to pay $100,000 to save 13 hours on a 2-3 hour private hypersonic flight from New York City to Japan. As shown below, passengers on short-haul flights are willing to pay roughly $15,000 for every 2 hours saved on private planes.
If 2.7 million passengers were to pay ~$100,000 for a long-haul hypersonic flight, the market would scale to $270 billion in revenues annually, an incredible opportunity for Virgin Galactic which is valued at only $1.5 billion today. Moreover, hypersonic flights enabling three-hour travel from one end of the earth to the other probably would create additional demand.
If so, could Virgin Galactic execute on that massive opportunity and fund its space tourism business at the same time? Perhaps so. In October, Boeing gave it a nod with a $20 million strategic investment.
Even with unlimited resources, the production of commercial-grade hypersonic aircraft could prove technically infeasible. ARK expects that Virgin Galactic’s ambitions will require a doubling not only of the maximum velocity of its airframe but also of its passenger payload, as shown below. At maximum velocity, the system would have eight times its current energy and probably would have to adhere to more stringent safety standards.
Conservatively, the design and production challenges could be 20 times more difficult than those that Virgin-Galactic currently faces. We will be monitoring Virgin Galactic’s progress as it prepares to fly from here to there, and beyond.