In the 1996 Star Trek film “First Contact” Captain Picard (played by Patrick Stewart) explains that in the time of inter-stellar space travel money is no longer required as whatever is needed can be produced on demand. Sadly for today’s intrepid astronauts with Virgin Galactic, Blue Origin and Space X, space travel’s success in the nearer future will require a more primitive profit focus.
It is certain that space operators will seek to apply commercial models first developed in aviation. The principles of pricing, revenue management and distribution used for travel on planet Earth will be just as valid for those moving beyond the atmosphere as they are for those moving through it.
But over the years aviation commercial platforms have become extremely inefficient as layer after layer of technology is added to systems that began as punch-card computers in the 1960s. If space travel is to be operated profitably the relevant pricing systems should seek to move beyond the challenges of legacy airline platforms. It will be a great time for an enterprising disruptor to shake things up and perhaps topple legacy vendors like Amadeus and SABRE.
This article presents three questions that people exploring the commercial potential of space will need to answer.
How should space tourism be priced?
Today’s space travel is mainly about tourism – taking people into orbit to experience a few minutes of zero-gravity. The most obvious pricing solution is cost-plus, with total costs of space ship construction averaged over anticipated missions numbers, marginal mission costs like fuel being added and the whole increased by a margin before division by the number of seats.
I don’t think that revenue management, the process of offering a large number of different prices to different customers through largely automated processes, yet has a role in space tourism. But it probably makes sense to have special prices for people buying more than one trip and a commission structure in place for agents.
It might be possible to do some kind of value-based pricing, taking the average income or wealth of target customers and setting a percentage that space tourism operators reckon they can charge in exchange for the bragging rights of having an astronaut’s wings.
What new types of space travel need to be priced?
As technology improves and space travel moves beyond tourism, it is easy to imagine four different types of space travel emerging within the lifespan of people alive today. Each will be associated with all manner of different use cases, which I will not attempt to guess what these might be here because the market will create them in time.
It will be the use cases that determine willingness to pay and long-term pricing strategies, so space operators will need to create tariffs that reflect the value that people obtain from their space travel.
The first type of commercial space travel will be flights within Earth’s orbit – either “flight only” up and down in a day or “flights plus nights” with time on a station required in addition to the flights. Some travellers may need to move beyond Earth’s orbit, perhaps to the Moon for example. These long trips can probably also be divided into “flight only” and “flights plus nights”.
Space operators will need to decide whether the flights on a space ship and the nights at a space station should be charged separately or together, just like flight and hotel packages on Earth. As with planetary travel there are likely to be some times when space travel is in high demand and others when it is not, and there might even be a role for overbooking and standby.
But some of the principles of air travel will be turned on their head. For example, since space travel is unlikely to be a mass-market proposition the principle that early bookers get the biggest discounts is unlikely to apply, with people who absolutely must have a seat on a space ship booking early and being charged a premium for the privilege.
How can a contracts be priced and issued automatically?
Airlines use Passenger Service Systems (PSS) to hold bookings, issue tickets and accept passengers for travel. Generally speaking a passenger needs a ticket to travel but an airline may choose to accept it for a flight where a passenger does not have a reservation. In formal legal terms, a ticket is a contract between the passenger and the airline where the carrier promises to accept the passenger for travel between two cities in exchange for the contract price, known as a fare. A booking on the other hand has no associated obligations - it is simply a space on a flight reserved for a certain passenger.
Space travel will also require a contract between the operator and the traveller at a defined price point, as well as an automated and reliable system that accepts and processes reservations and validates the contract before accepting the passenger for travel. However I expect that a simple fare-quote-price-ticket process will not stand for the early days of space travel as contracts will probably be quite a bit more complex than a simple passenger-origin-destination-baggage model. As a result, current PSS are unlikely to be fit for purpose as the contracts will be too hard for them to analyse and innovation will be required.
For example different passengers may need to take different equipment with them, which will all have different requirements for processing and storage. Space travel’s excess baggage policy will be much harder to implement than an airline’s.
I think it is likely that the existing PSS suppliers like Amadeus and Sabre will become active in the space travel market. But they will need to innovate if they want to remain key players. Unlike in air travel, which is a mature technology and people can afford to wait for airlines to take decisions, space operators will need turnkey solutions which they cannot define themselves, a skill lacked by most current PSS suppliers. It will be interesting to see whether startup disruptor space PSS suppliers can be more enterprising than the incumbents.
Per ardua ad astra
I know that this article is a bit speculative and I don’t have any real answers to the questions yet. But thanks to the great efforts of Bezos, Branson and Musk I am sure that the answers will be needed sooner rather than later. I look forward to help figuring out what they are.
oliver AT ransonpricing DOT com