Profile and Performance

Business Report

VIRGIN GALACTIC

Loic Pitois
Contents

Introduction 3
Demand 4-6
Supply 6-7
Elasticity 7
Competition 8
Conclusion 9
Bibliography 10

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 Introduction
This report will look at the demand, supply, elasticity and perfect or imperfect
competition of the company VIRGIN GALACTIC and its product: its suborbital flights.
There are two main reasons for choosing this company and its very unique product:

● I believe this is one of the most exciting products ever to be launched, due to
its novelty, innovation and importance.

● More than just another consumer item, these suborbital flights will, in future,
benefit the whole of mankind. Professor Steven Hawkins, the father of modern
physics, has agreed that better access to space is going to be crucial to the
reorientation of the world’s industries in coping with climate change (Richard
Branson) 2009

The concept is innovative: to offer paying customers a flight that will take them to the
boundaries of space and the experience weightlessness.

The company, VIRGIN GALACTIC, owned by Sir Richard Branson, is part of the
VIRGIN group. Founded in 2004 in partnership with Mojave Aerospace Ventures
based in California, this company has become the world’s first space line to operate
its privately owned spaceships.

Thanks to Richard Branson’s vision and determination, what once was only a dream
has now become a reality. What once was only experienced by the elite will soon be
available to the public.

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 DEMAND
Definition:
‘The amount of a particular goods or service that a consumer or group of consumers
will want to purchase at a given price.’(Source: www.InvestorWords.com)

The two main reasons why I believe the demand for this product will be high, are its
uniqueness and the fact that VIRGIN GALACTIC have no actual competitors at this
moment in time .
Other factors that may affect the demand in a positive way could be VIRGIN’s
excellent reputation in luxury travel and adventure, or its vast experience in aviation.

a) Who would want to buy into such an experience?

The demand can be divided into two distinct markets:

• The scientific market: Richard Branson hopes that in time, his new space
launch system could take payloads such as satellites and scientists into space
(Richard Branson) 2009

• The civilian market: The range of people willing to buy a ticket to experience
weightlessness at the doors of space is wide; interest could be created by a
life-long dream, its novelty factor, or the attraction of the unknown.

If questioned, it would not be unreasonable to find millions of people around the

world wanting to make the trip if cost was not an issue.

The existing customers are members of the public, company directors, managers,
journalists, and movie stars such as Angelina Jolie, Brad Pitt or Tom Hanks, famous
sportsmen such as Michael Schumacher or Rubens Barrichello, scientists, such as
Stephen Hawking, members of royalty like Princess Beatrice, or designer Philippe
Stark (source www.virgingalactic.com).

b) Who would be able to pay for such an experience?

Despite the high cost of a ticket ($200 000 / £125000), there is a vast amount of
potential customers in the world today; already 380 people have paid $ 7.6 million in
deposits alone. (www.virgingalactic.com)

The list of paying customers already sets the tone; artists from the film and music
industries, world class athletes, scientists, dignitaries, directors and managers of
multinational companies, alongside successful members of the public.

According to this year’s 14th annual “world wealth report”, the number of millionaires
has increased by 17% in 2009, despite the global economic crisis. The new figure
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calculated by the economist intelligence of the bank Barclays indicates that the world
counts today more than 10 million millionaires. (www.capgemini.com)
The “rich and famous” represent only 0.13% of the world population but is enough to
make an operation like VIRGIN GALACTIC successful. It could be envisaged that
world class companies would purchase tickets as prizes for competitions, incentives
or rewards for deserving members of staff, or simply as bait to negotiate an
important contract. (www.dailyfinance.com)

In the future, this customer base will widen as the cost of tickets drop, allowing
people from a more modest background to share the experience.

“We expect that as the flight hardware matures, and is operated by competing
spaceline companies, many thousands of people will experience the wonder of
leaving the earth’s atmosphere each year”( Richard Branson, 27thJuly
2005,announcement of joint manufacturing program between Scaled composites
and Virgin – OSHKOSH, USA) (source http://www.whiteknighttwo.co.uk)

c) Why would customers be willing to pay for such an experience?

In my opinion, there are three important factors that would make customers want to
pay for Virgin’s suborbital flight: its uniqueness, its novelty factor, and the star
appeal.

Uniqueness:
Most parts of the world are accessible to us today; we can book a holiday nearly
anywhere and reach our dream destination in a matter of hours, but this trip is no
ordinary vacation. It will allow the passenger to experience what very few men have
experienced or seen before. Because of its cost and the limited number of shuttles,
(VIRGIN GALACTIC are planning to operate a fleet of 5 spaceships), this will never
be a mass destination trip, adding to its originality.

Novelty factor:
There is simply no other similar experience in the world today; thanks to new
technologies, there are no limits to what we can do or where we can go (not taking
the cost factor in consideration). Progress has allowed us to reach the most remote
places on earth: for $50 000 dollars, you can now climb Mount Everest, or dive two
and a half miles into the north Atlantic to see the wreck of the Titanic (source
www.deepexplorations.com and www.peakfreaks.com ).
According to NASA, only 518 humans have ever left the earth since Yuri Gagarin in
1961, and only two were “space tourists” : Toyohiro Akiyama ( 1st Japanese in
space ) and Sultan Salman Al Saud ( 1st Saudi Arabian and only royal person in
space). (source www.nasa.gov)
Finally the last place for civilians to experience and explore has been made available
by VIRGIN GALACTIC, one of the most exciting tourist destinations will, without a
doubt, become one of the hottest attractions of the century.

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“Star appeal”
The presence of high profile personalities amongst the original 380 passengers will
boost the demand for these flights, as there will always be the “star attraction”. The
free TV and media coverage will help promote the brand and the product.

Factors affecting increase or decrease demand:

Increase in demand:
The immediate two facts that would increase demand for tickets would be positive
feedback from first customers (especially celebrities) and a drop in the cost of the
tickets. In time, if rival companies decided to pull out of the race all together, that
would also influence the sales in a positive way.

Decrease in demand:
The most obvious negative fact would be a setback or an accident. Negative
feedback from the first customers would of course influence the sales figures, and
the arrival of a competitor or a rise in ticket prices would, on a smaller scale, affect
the demand.

SUPPLY

“Spaceship 2” is built by the Spaceship Company, a business specialised in

spacecraft manufacturing. Formed in 2005 by Richard Branson and Burt Rutan, it is
jointly owned by Virgin Group and Scaled Composites.

All the main parts are built “in house”, reducing cost and supplier problems The
aircraft is built mainly of carbon fibre, which, although expensive, has an unlimited
fatigue life. The initial cost of production will be absorbed in time, compared to
“traditional” spacecrafts using steel that cannot be continuously re-used.

The launch system will rely on a fuel derived from laughing gas and rubber, and
because of its unique “piggyback” launch system, (the space craft is launched at
high altitude from the mothership) VIRGIN GALACTIC will be able to operate
thousands of flights for every one of NASA’s (source www.virgingalactic.com).

The rising cost of fuels could be a problem in the future, but Richard Branson,
through one of his companies VIRGIN FUELS, is already looking into the future. In
2005, alongside US president Bill Clinton, he personally pledged 3 billion dollars to

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develop clean fuels and is already running some of his commercial aircrafts on a
percentage of bio fuel.

The 2 mile long runway was inaugurated last month in New Mexico and the
Spaceport will be operational in 2011 as for the crafts, VIRGIN GALACTIC already
possesses 2 carrier planes and 2 suborbital planes that have flown together in March
2010, but will require another 15 months of testing before being allowed to take
paying customers on board (source www.virgingalactic.com)

At present, the spacecraft would set off and land from one location, but Richard
Branson has not ruled out the possibility of a second spaceport located in Asia
allowing more flights in the future.

ELASTICITY

Definition:
The degree to which a price change for an item results from a price change in
supply, or a unit change in demand. (www.InvestorWords.com)

It is clear to say that currently, this product can be described as inelastic due mainly,
to its very unusual nature, and its targeted consumer market. This is a luxury
product, and it’s very unlikely that should prices increase, it would not impact upon
its customers willing to pay $200 000 for a three hour flight.

Unlike most other consumer

products, in the absence of other
operational competitors, there is a
lack of competition. If Richard
Branson decides to reinvest the
profits made by his company in order
to offer cheaper flights, the demand
will only increase along with the
supply.

Cross elasticity of demand: there

are no similar products or substitutes
as this product is unique.

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Price elasticity of demand: in this case, the PED would be less than one as sale
figures would not be affected by a change in price.

COMPETITION

To date, 36 privately owned companies have started a commercial spacecraft

program: 13 are in a development stage, 12 have cancelled their program, 9 are in
various stages of testing engines, and 1 has retired, leaving VIRGIN GALACTIC as
the only company who has managed to design, build and successfully launch their
spacecraft (source www.nasa.gov).

Undoubtedly, other companies will operate similar flights in the future but, according
to his book “Losing my Virginity”, Richard Branson plans to use all the benefits made
by VIRGIN GALACTIC in order to offer cheaper flights, allowing greater numbers of
people to join the experience. (Richard Branson 2009) The AFP news agency quotes
Branson saying. "I know there are literally thousands of people who would love to go
to space, to be able to look out the window, to marvel at the beautiful Earth, through
Virgin Galactic we will make it possible." (source
http://news.bbc.co.uk/1/hi/8400353.stm)

There is more than one advantage to be the first commercial space tourism operator.
Alongside the recognition and advertising, the leader will have the edge on its
competitors. They will be in a position to offer cheaper flights by reinvesting its
benefits making it harder for a new company to match the offers of someone already
operational and experienced.

At the moment, it is safe to say that VIRGIN GALACTIC is enjoying a perfect

monopoly status, as no other company is in a position to challenge Richard Branson.
The possibility of the market turning into an oligopoly anytime in the future is slim,
mainly because of Virgin’s level of development compared to its rivals but also
because of the colossal investment that would be required to catch up with VIRGIN
competitively.
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 CONCLUSION
Despite its complex and lengthy set-up, Virgin Galactic has managed to perfectly
capture Richard Branson’s original business philosophy; to be innovative and
passionate whilst enabling as many consumers as possible to benefit.
Money Week, the UK’s best-selling financial magazine, declared in 2006 that all
market research to date suggested that there was more than enough interest to
justify Virgin’s investment, declaring Virgin Galactic needed only 5000 customers
over the first five years to turn a profit. (source http://moneyweek.com/investment-
admice/will-space-tourism-ever-take-off.aspx) Currently, the company plans one
flight per week. However, future plans include extending to several flights a week
leaving from two locations as demand increases.

I would invest in VIRGIN GALACTIC because I believe that this product has great
potential with few competitors, and a long life span. The number of potential
customers is constantly rising; the Mail Online reports that 82 000 people have
registered interest, and the demand will only increase as prices decrease.
Even if the product is not a necessity and remains a luxurious extravagance, I am
sure it will become one of the “must do” things on many peoples’ lists around the
world, finally giving Richard Branson the Jewel in his Virgin crown.

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Bibliography

www.news.bbc.co.uk

www.blogginstocks.com

Branson R, 2009, Losing my Virginity, London: Virgin

www.businessweek.com

www.capgemini.com

www.commercialspaceflights.co.uk

www.dailyfinance.com

www.dailymail.co.uk

www.investorwords.com

www.moneyweek.com

www.nasa.gov

www.success.com

www.telegraph.co.uk

www.whiteknighttwo.co.uk

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