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HLLV vs. high flight rates: A look at economies...

Posted by: Ekkehard Augustin - Fri Oct 14, 2005 10:53 am
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HLLV vs. high flight rates: A look at economies... 
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Post    Posted on: Mon Nov 12, 2007 1:07 pm
To get a proper illustration regarding economies of scale by weight or by number of flights simply take SpaceX’s Falcons as published in 2005 and 2006 at their homepage. I am referring here to what’s still available under www.bernd-leitenberger.de – I provided a link to the page in a particular thread in the Technology section.

At present none of the prices don’t account for reusability according to Elon Musk – so the numbers may be considered to be representative for expendable rockets as well.

The prices per kg are as follows

Code:
rocket     F1      F5     F9          F9 Heavy

capacity     570   4100   9300/8700   24750
$/kg       11754   4390   2903/4023    3152


This seems to be speaking for economies of scale by weight – but NOT completely. The Falcon 9 Heavy has a higher price per kg than the Falcon 9 which will be due to the boosters. This clearly shows that “heavyâ€


Last edited by Ekkehard Augustin on Tue Nov 13, 2007 7:49 am, edited 1 time in total.



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Post    Posted on: Mon Nov 12, 2007 4:33 pm
Hi Ekkehard

Your analysis demonstrates that when it comes to choosing a launch all options need to be evaluated, and that the range and pricing of available launch vehicles has implications for optimum payload design. You highlight some quirks which are due to the inherent quantization of capacity/price in rockets.

I am concerned about inferring anything about the fundamental nature of launch costs from published prices. Can we really assume that price is always directly proportional to true costs? In particular, might a launch provider place a premium on heavy lift precisely because of the lower demand, rarer supply, and the benefits to the customer of not having to subdivide the payload, conduct on-orbit assembly and so forth?

Even if pricing per kg had seemed flat across the range of launch capacities, might it be that a launch provider was realizing economies of scale on the larger launches and taking the benefit for himself rather than passing it on to the customer?

A provider might also price small launches low, particularly at startup, in order to build credibility and reputation by notching up some launches quickly, without an excessive strain on working capital.

Pricing is about marketing and what the market can stand. So it does not seem secure to infer any fundamental law of nature about true costs from published prices. Sorry, but this seems like a vulnerability in your argument, Ekkehard.


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Post    Posted on: Mon Nov 12, 2007 4:39 pm
@xiphius, you have a point, but what you're saying would be a cartel of these companies. Allthough likely, it cannot be proven and therefore it's silly to calculate that into it. Rocket companies aren't philantropic companies, so they want to make as much profit as possible, anyway as possible. And since all launch prices are pretty much level across the scala of launch vehicles (except russians, allthough they are rising fast) it's a real possibility. I doubt the margins are small. Small margins and high risk is no solid business.


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Post    Posted on: Mon Nov 12, 2007 5:26 pm
Stefan Sigwarth wrote:
@xiphius, you have a point, but what you're saying would be a cartel of these companies. Allthough likely, it cannot be proven and therefore it's silly to calculate that into it. Rocket companies aren't philantropic companies, so they want to make as much profit as possible, anyway as possible. And since all launch prices are pretty much level across the scala of launch vehicles (except russians, allthough they are rising fast) it's a real possibility. I doubt the margins are small. Small margins and high risk is no solid business.


:shock:

Hi Stefan

I never meant to suggest such a thing as a cartel.

Ekkehard's argument is based on the pricing of only one company. That company is new to the industry and backed by a HiNWI rather than a big corporation, hence my comment about pricing smaller launches.

As SpaceX are also aiming to undercut other providers at the heavy lift end they could afford to reap the benefits of economies of scale, if any, without jeopardizing market share.

Any similar 'new space' companies might simply employ similar thinking, without a conspiracy. I am not suggesting anything improper is going on, and I think my comments are defensible without presuming a cartel.


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Post    Posted on: Tue Nov 13, 2007 7:34 am
xiphius wrote:
:shock:

Hi Stefan

I never meant to suggest such a thing as a cartel.

I know, but from what i read it would be a logical explanation why rockets are priced so evenly.

Quote:
Ekkehard's argument is based on the pricing of only one company. That company is new to the industry and backed by a HiNWI rather than a big corporation, hence my comment about pricing smaller launches.

As SpaceX are also aiming to undercut other providers at the heavy lift end they could afford to reap the benefits of economies of scale, if any, without jeopardizing market share.

Any similar 'new space' companies might simply employ similar thinking, without a conspiracy. I am not suggesting anything improper is going on, and I think my comments are defensible without presuming a cartel.


Yes, off course.


On the other hand you can think that what these other companies have in common? They are extremely big, so the cost of keeping the workforce fed is enormous. But still, if you are that big and relative few customers plus you have competitors, how can you survive? If any of the big companies would go under the established price so to attract every customer he can find in a year, the other company would have to do it, just to stay in the game. So why isn't that happening? Prices are still high, yes no economics of scale, but still.

Conspiracy is a bit of an abused word, and the correct term is still cartel. I think it's a very real possibility and it would be fun to see how the big companies would adjust their prices (or not) if SpaceX becomes a regular launcher.

But regarding calculating the costs of a launch. SpaceX is a company where they provide lots of numbers so you can calculate a lot more then just educated guessings. Plus, i think the pricetags SpaceX is advertising are more realistic in terms of a small profit margin and a relative small company. But again, would be fun to see if the big companies would drop their prices or simply stop building rockets.


Edit

O ***, i thought this was the SpaceX thread. Lol. Either way, like i mentioned above, you can calculate it with more precision ánd it's very likely they have a modest profit margin compared to the big companies.


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Post    Posted on: Tue Nov 13, 2007 8:15 am
Hello, xiphius,

the vulnerability of what I said up to now is not that essential or significant as it is looking at the first glance.

The launch-prices of the Flacon explicitly don't account for reusability and thus include the whole investment into the particular Falcon. Since the investment is investment into hardware and hardware of expendable rockets makes up much more than 90% of the launch costs of expendable rockets the prices can be considered to be close to the actual costs in case of expendability.

Next SpaceX is competing to the existing rocket producers which all produce expendable rockets up to now. SpaceX isn't well established yet and thus must keep their prices down to get market shares and pull orders and demand away from the other rocket producers. And they explicitly will reduce the prices when the Falcons prove to be as reliable as they are intended to be.

There is a good potential competitor SpaceX internally will be watching - t/Space and Air Launch LLC. The QuickReach under develoment at present will cost no more than $ 5 mio per launch, is expendable and has a capacity of 1000 pounds which is close to the capacity of the Falcon 1 of 2005/2006. This potential competitor already may force them to set their prices as close to the costs as possible without dropping profits below a lower margin of around 5% I suppose.

Economies of scale aren't simply and only the economies of scale at the side of the producer or servicer - the economies of scale I am illustrating are economies of scale the customer experiences because the prices set by SpaceX are costs for the customer who wants to get a payload launched via the Falcons.

The results I got in the SpaceX-thread up to now mean that the actual prices of 2005/2006 may include profits only of a few million dollars while the prices all are several million dollars. So the economies of scale may be reasonably shared between SpaceX and their customers.

What you mention regarding the sharing of economies of scale with customers is highly dependent of the market situation and market structure. At present SpaceX doesn't have significant market power and the barriers to new entry aren't too high (by barriers to new entry not funding is meant but the risk that a company can't or mustn't leave the market because it would have no other chance to earn depreciations and pay back credits. This would mean to be the prisoner of the market. Such a situations isn't given at present.). Because of this SpaceX at present can't abuse any market power.

Next the illustration isn't complete yet.

Here I only want to add that the Falcon 5 isn't going to be built soon. This means that 4 to 5 flights of the Falcon 1 would be cheaper than 1 flight of the Falcon 9 if the payload in total isn't heavier than 2280 kg to 2850 kg. Which of the two numbers depends on which Falcon 9 is considered. And these are economies of scale experienced by the customer.



Hello, Stefan,

your posts are fitting into this thread very well from my point of view. Good posts.



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Post    Posted on: Thu Nov 22, 2007 9:33 am
Hi,
I'd like to throw in this link
http://www.astronautix.com/articles/costhing.htm
to launch costs at astronautica.
The point is made here that there is a considerable disconnect between launch costs and what is actually charged by old space launchers, partially because all the development costs were borne by NASA. Partially because large companies with multiple programs make it difficult if not impossible to find what are real costs and what are accounting quirks.
The conclusion is that launch charges for Delta and Atlas are somewhat arbitrary.
But SpaceX is a "clean" commercial build. There are no other programs to hide or subsidise costs. What you see is what you get.
This is not to say SpaceX is better or worse.
It is to say that SpaceX is using a totally different economics.

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Post    Posted on: Thu Nov 22, 2007 9:41 am
Hello, Frediiiie,

development costs shouldn't be accounted to any single launch - except for by depreciation of development costs - because development costs are investment. But these development costs don't age by time nor by number of launches and also can be applied to several rockets of the same rocket family like Delta or Atlas etc..

In so far I don't see no problem with launch costs listed.

The other problem your are mentioning seems to have to do with common costs/Total Costs of Ownership. Such costs are handled by not assigning them to rockets or launches and not accounting them into any price but by pricing launches so that all launches together cover all costs when summed up.

This also means that economies of scale and economies of scope will not be effected that much - in contrary merely.


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