Author Topic: How frequently does a RLV need to fly in order to amortize its costs?  (Read 11271 times)

Offline Pipcard

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"Traditionally, you need at least 8 launches per year to justify partial (first stage) reuse and at least 40 launches per year to justify full reuse." -  Robotbeat

I keep seeing claims like these or these and wonder, what study (or studies) came to this conclusion, and how did they do it? Of course, the reason for this flight rate is to amortize the costs of development and maintenance overhead, but to what extent?

Elon Musk also claims that "At a low flight rate, the improvement [in launch cost] is still probably around 50 percent," although the exact rate isn't specified.
« Last Edit: 06/28/2015 06:14 PM by Pipcard »

Offline guckyfan

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"Traditionally" is the operative word here. Falcon 9 is not a traditional RLV. While it would need a high number of flights to get to lowest cost and still maintain revenue flow for SpaceX it works at any number of reflights, starting with one. It would just lower the cost per flight less than with many flights.

Offline pippin

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Has nothing to do with traditional or not. There is an amount of fixed cost in your production chain and there is an amount of variable cost towards recovery and reflight. Unless you know these you can't determine the flight rate required to make reuse cheaper than building a new core but the flight rate will definitely be higher than one flight a year.

Offline john smith 19

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Has nothing to do with traditional or not. There is an amount of fixed cost in your production chain and there is an amount of variable cost towards recovery and reflight. Unless you know these you can't determine the flight rate required to make reuse cheaper than building a new core but the flight rate will definitely be higher than one flight a year.
There is also the implicit assumption that the company that builds the RLV will operate the entire fleet.

So imagine the cost implications of Boeing running an airline and only building aircraft for them and only getting revue from their own flights. [EDIT versus the number of aircraft of any Boeing design they actually sell to all air lines ]
« Last Edit: 06/29/2015 02:34 PM by john smith 19 »
BFS. The worlds first Methane fueled FFORSC engined CFRP structured A380 sized aerospaceplane tail sitter capable of flying in Earth and Mars atmospheres. BFR. The worlds biggest Methane fueled FFORSC engined CFRP structured booster for BFS. First flight to Mars by end of 2022. Forward looking statements. T&C apply. Believe no one. Run your own numbers. So, you are going to Mars to start a better life? Picture it in your mind. Now say what it is out loud.

Offline Ludus

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If it's like the shuttle and is ONLY a reusable launch vehicle (RLV) the answer is different than if it's like F9R and can also be expendable. The shuttle style vehicle isn't produced in quantity, it's designed to be reused many times and it's got a unit cost MUCH higher than comparable launch capacity on expendable rockets. It has to fly enough to offset that difference when all reuse and fixed costs are accounted for in order to amortize it's cost. The issue only has meaning relative to what launch would have cost otherwise.

The F9R is profitable with a single use at current prices so it doesn't need to fly more than once to amortize it's cost. Recovery and reuse doesn't matter. if SpaceX wanted to lower launch prices for reuse they could, but it would cannibalize some business. Since SpaceX is currently the low cost provider they would be undercutting themselves.

The marginal cost for reflying a F9R could be extremely low (gas and go) even an order of magnitude lower than for expending a new rocket and still not make the case for lowering the customer price of a launch at all. SpaceX might take advantage of lower marginal costs with internal projects like the Internet constellation without changing prices.

Offline john smith 19

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If it's like the shuttle and is ONLY a reusable launch vehicle (RLV) the answer is different than if it's like F9R and can also be expendable.
The F9 is an ELV that  SX are trying to turn into a semi reusable LV. It could be be argued that is no more than the same level of reusability as the Shuttle.
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The shuttle style vehicle isn't produced in quantity, it's designed to be reused many times and it's got a unit cost MUCH higher than comparable launch capacity on expendable rockets.
the argument is an RLV over it's lifetime can put many times the payload of the biggest ELV into orbit.  The question then becomes how many giant monolithic payloads exist to support that size of ELV. The answer is not many.
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It has to fly enough to offset that difference when all reuse and fixed costs are accounted for in order to amortize it's cost. The issue only has meaning relative to what launch would have cost otherwise.
Again this assumes the builder is the operator.  There is no other transport mode where this is the case. Shipyards don't run cruise lines. Truck makers don't run haulage companies.

This suggests there is something quite wrong with how the launcher and launch services market operates.
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The F9R is profitable with a single use at current prices so it doesn't need to fly more than once to amortize it's cost. Recovery and reuse doesn't matter. if SpaceX wanted to lower launch prices for reuse they could, but it would cannibalize some business. Since SpaceX is currently the low cost provider they would be undercutting themselves.
The fully reusable F9 has been off the table since September 25th 2014 at the latest.
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The marginal cost for reflying a F9R could be extremely low (gas and go) even an order of magnitude lower than for expending a new rocket and still not make the case for lowering the customer price of a launch at all. SpaceX might take advantage of lower marginal costs with internal projects like the Internet constellation without changing prices.
If it existed to begin with.

Which it does not.

So I guess you're saying that the F9, being an ELV, just needs to fly once to cover its costs.
Just like every other ELV.
BFS. The worlds first Methane fueled FFORSC engined CFRP structured A380 sized aerospaceplane tail sitter capable of flying in Earth and Mars atmospheres. BFR. The worlds biggest Methane fueled FFORSC engined CFRP structured booster for BFS. First flight to Mars by end of 2022. Forward looking statements. T&C apply. Believe no one. Run your own numbers. So, you are going to Mars to start a better life? Picture it in your mind. Now say what it is out loud.

Offline ClaytonBirchenough

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We'll have to see.

Seriously though. The brightest minds (at the time) engineered the STS. It offered lower cost and a higher flight rate. The program did not deliver on its reusability promise and that affected its flight rate which then affected its cost.

Numerous programs, studies, and companies have produced viable reusable vehicles on paper and with prototypes, but they often fail on practicality.

It seems (with regards to SpaceX's F9R) the first question we should be asking is how much refurbishment (cost wise) after each flight F9R's first stage needs for reuse. Then SpaceX figures out in reality what it actually costs.

Not sure if what I said just made sense, but anyone that has worked in or studied the LV industry should know that studies and paper rockets are often "optimistic" and don't follow through with their "promises". Any speculation based on these unproven studies and paper rockets becomes that more unpredictable and inaccurate.
Clayton Birchenough
Astro. Engineer and Computational Mathematics @ ERAU

Offline SoulWager

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Depends on the elasticity of demand, on the marginal cost of a new core, on the marginal cost of refurbishment, on fixed costs in both production and refurbishment, and on reliability.

Elasticity of demand is one big factor I think ULA failed to properly account for, so that's why they expect a fully reusable vehicle to need more flights to break even. If the reused flights get sold in addition to the existing manifest, you need far fewer flights per core to make the reuse case profitable.

Offline guckyfan

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So I guess you're saying that the F9, being an ELV, just needs to fly once to cover its costs.
Just like every other ELV.

Yes, just with the bonus that its first stage can fly again. :)

Offline guckyfan

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Depends on the elasticity of demand,

That's the brilliant economics in the SpaceX reuse concept. It works at any point of the elasticity curve. It can lower prices if more flights occur, it is very competetive if not.

Offline pippin

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Has nothing to do with traditional or not. There is an amount of fixed cost in your production chain and there is an amount of variable cost towards recovery and reflight. Unless you know these you can't determine the flight rate required to make reuse cheaper than building a new core but the flight rate will definitely be higher than one flight a year.
There is also the implicit assumption that the company that builds the RLV will operate the entire fleet.

So imagine the cost implications of Boeing running an airline and only building aircraft for them and only getting revue from their own flights. [EDIT versus the number of aircraft of any Boeing design they actually sell to all air lines ]

I can't imagine those because they would completely depend on how competent Boeing is at managing an airline, something we all don't know. There are no implicit cost implications of vertical integration, only business model implications.
« Last Edit: 07/06/2015 12:02 PM by pippin »

Offline pippin

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Depends on the elasticity of demand,

That's the brilliant economics in the SpaceX reuse concept. It works at any point of the elasticity curve. It can lower prices if more flights occur, it is very competetive if not.

This is wrong. Their fixed costs don't go away. They lower the price and then can no longer pay their staff PLUS they have to pay for whatever maintenance the recovery requires.
Nothing gained from the recovered core if demand isn't high enough to cover the fixed cost.
« Last Edit: 07/06/2015 12:05 PM by pippin »

Offline JamesH

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But they presumably have wiggle room to reduce the costs before they hit the 'staff' costs issues, and with the EELV versions, they have no recovery costs.

But for the moment, even with re-usability, they probably need to keep prices up to pay for Mars, but conversely, drop them enough to encourage more customers. Standard business balancing act.

Offline Wigles

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Depends on the elasticity of demand,

That's the brilliant economics in the SpaceX reuse concept. It works at any point of the elasticity curve. It can lower prices if more flights occur, it is very competetive if not.

This is wrong. Their fixed costs don't go away. They lower the price and then can no longer pay their staff PLUS they have to pay for whatever maintenance the recovery requires.
Nothing gained from the recovered core if demand isn't high enough to cover the fixed cost.

The price to reuse can't be higher than the expendable cost (or reuse is an economic folly), and their sell price can't be lower than their fixed costs; this defines the upper and lower bounds. However, they are apparently profitable at the expendable end of the spectrum so as long as reuse costs are less than new build costs then increasing reuse should lead to lower costs.

The question of frequency shouldn't come into it unless the storage costs (or other time-based costs) for a non-flying vehicle are a significant cost driver (which may be the case, not a professional reusable rocket accountant).

This cost reduction is going to be a diminishing returns scenario trending to a little higher than their fixed costs, and there will come a point (number of reuses) whereby the cost of refurbishment actually starts to increase. That will define the lowest cost point.

The question of how many times a reusable rocket needs to fly to amortize its costs is backwards. I would want to understand how many times I could reuse a rocket (or stage) and what the cost per reuse is and how that trends with number of reuses. That will then allow me to define my pricing such that I can spread out the unit costs among enough launches and still make a profit overall.

Offline Wigles

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But for the moment, even with re-usability, they probably need to keep prices up to pay for Mars, but conversely, drop them enough to encourage more customers. Standard business balancing act.

Agreed, if they crack reuse and the reuse costs are not significant compared to the production costs then they can easily afford to undercut their competition to steal market share while fostering new growth while also retaining a healthy profit margin for other activities Elon might have his eye on.

Offline pippin

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But they presumably have wiggle room to reduce the costs before they hit the 'staff' costs issues, and with the EELV versions, they have no recovery costs.
Huh? There is nothing in this world, that has "no costs". Everything comes as a price and of course they have recovery costs. A lot of which are fixed costs again which makes the economies of the whole thing even more susceptible to changes in demand.

Offline pippin

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The price to reuse can't be higher than the expendable cost (or reuse is an economic folly)
Yea, but who says it isn't? SpaceX for sure doesn't know, yet. They invest to find out.

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and their sell price can't be lower than their fixed costs
???
Of course they can. That's what every growing company does. I bet SpaceX has yet to sell the first flight that covers their fixed costs. Right now they are still scaling up so they are far from covering their fixed costs with the ongoing business.

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However, they are apparently profitable at the expendable end of the spectrum
Who says they are profitable? SpaceX doesn't, SpaceX says they are cash-flow-positive which is something entirely different. I would be very, very surprised if they were profitable.

Profitability is also an accounting figure that is primarily of interest for capital investors, not actual operational business.

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so as long as reuse costs are less than new build costs then increasing reuse should lead to lower costs.
This wouldn't even be true if they were profitable.
We don't know SpaceX' cost structure, but they are very vertically integrated.
If their fixed cost (factory, people, capital cost, launch pads,....) makes a high part of their overall cost (I wouldn't be surprised, if that's well beyond 70-80% in SpaceX's case, that raw AlLi and copper they buy isn't really a massive cost driver) then there is very little room for savings. If not building a core only saves you 25% of the overall flight costs then everything you need for the reuse, including fixed infrastructure, personnel, capex,... needs to be below 25% of the flight price to have a working business case. That changes only at the moment where you can increase the flight rate beyond the capacity of your infrastructure (factory), at that point you start to profit massively because you don't need additional investment. Those incremental flights will then come at very low incremental cost and will be profitable independent of the state of the rest of your business.
But as far as your flight rate is too low to pay for all the capacity you built it will be very hard to find any business case for reuse, no matter how cheap it is.

So it all depends on the flight rate and we don't know that.

Offline guckyfan

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Depends on the elasticity of demand,

That's the brilliant economics in the SpaceX reuse concept. It works at any point of the elasticity curve. It can lower prices if more flights occur, it is very competetive if not.

This is wrong. Their fixed costs don't go away. They lower the price and then can no longer pay their staff PLUS they have to pay for whatever maintenance the recovery requires.
Nothing gained from the recovered core if demand isn't high enough to cover the fixed cost.

If you read my post this is exactly what I wrote. As an ELV they are very competetive right now. They will be more competetive when they can refly but the trade how much they can reduce prices depends on the number of flights they can spread the fixed cost over. So very limited price reductions when the number of flights does not increase, a lot of price reduction when it increases a lot. But unlike a vehicle like SpaceShuttle or Skylon which have skyhigh fixed cost they can compete at any number of flights, high or low.

Offline guckyfan

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Who says they are profitable? SpaceX doesn't, SpaceX says they are cash-flow-positive which is something entirely different. I would be very, very surprised if they were profitable.

There are statements that indicate they need about 15 launches a year to be profitable once NASA payments for development are gone.

Edit: fixed quote
« Last Edit: 07/06/2015 01:04 PM by guckyfan »

Offline pippin

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As an ELV they are very competetive right now.
Because they are pricing their product competitively. We don't know their cost structure so we don't know whether they earn or lose money with that.

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They will be more competetive when they can refly
Again: we don't know that. I bet neither does SpaceX. If it means they need all that infrastructure, landing pad, legs, drone ships, range assets, reduced payload yet only successfully recover every 3rd core or so they will not. If they can dismantle most of that in the long run and essentially successfully fly back 90% of the cores at high flight rate it's a no-brainer. Reality will likely be somewhere in between.

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But unlike a vehicle like SpaceShuttle or Skylon which have skyhigh fixed cost they can compete at any number of flights, high or low.
That's a fallacy. They will be able to compete at a lower flight rate, that's for sure. Any? No way, there's fixed infrastructure they have to keep around for recovery and I bet that's more expensive than raw metal.

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