Investing in Space: Virgin Galactic still has a big hurdle to clear for commercial service

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In this article

CNBC's Investing in Space newsletter offers a view into the business of space exploration and privatization, delivered straight to your inbox. CNBC's Michael Sheetz reports and curates the latest news, investor updates and exclusive interviews on the most important companies reaching new heights. Sign up to receive future editions.

For years, it's been months away.

After Virgin Galactic last week flew its final developmental spaceflight, which it crowned successful, it'd be easy to think the space tourism company is at a turning point. It's finally going to begin commercial flights, aspiring to fly its first ticketed passengers.

But the Virgin Galactic story is not about its first operational spaceflight, as long-awaited as that may be. It's about cadence – how quickly the company can safely ramp up the rate it launches commercial spaceflights.

Space tourism is filled with mystique and wonder, and the relevant finances are no exception. For example, we still don't know for sure how much a private SpaceX trip to orbit goes for, and Elon Musk's company has completed three of those already. But thanks to Virgin Galactic's status as a public company, the money math is all out there in the open. And once again, it's all about cadence.

For now Virgin Galactic has one spacecraft, VSS Unity. CEO Michael Colglazier believes it will take a couple flights before the company hits a monthly cadence with that vehicle. Its second spacecraft, VSS Imagine, was effectively sidelined late last year, so it's unclear when, or if, that will enter service. Colglazier has emphasized that Virgin Galactic's resources are focused on developing its next-generation, Delta class spacecraft – yet those aren't expected to begin flying passengers until 2026.

So, the math. Virgin Galactic sold about 600 tickets at $250,000 or less, representing the majority of its total reservations. Virgin Galactic has at most flown three passengers at a time, in addition to its chief astronaut trainer, Beth Moses, on its Unity test flights. Flying without Moses or another company guide would free up an additional seat, but still leaves Virgin Galactic with anywhere from 150 to 200 Unity flights-worth of customers to strap in before it gets to those paying its higher rate of $450,000-plus-per-seat.

Even in an optimistic scenario where Virgin Galactic gets Unity to a monthly flight cadence with four passengers each by the end of this year, that's roughly 25 or so flights, or $25 million, by the time a Delta spacecraft enters service. That's leaps and bounds more than the company has generated since its founding in 2004. But it won't do much to dent the more than $100 million a quarter the company is losing in the meantime.

Yes, Virgin Galactic has nearly $900 million in cash and securities to continue to cover losses in the meantime. But those funds will be running low, with not much revenue to replace it, by the time the oh-so-critical Delta enters service under the current timeline.

Colglazier has described Delta as the economic engine for Virgin Galactic, estimating revenue of over $2.7 million per flight. The spacecraft will be able to pay off its construction cost within six months if it's flying weekly, he's said. But the company needs to get it flying first, and the years of delays in Unity's development don't necessarily bode well.

And there's another, albeit speculative, wrinkle: At what point does the mystique and wonder, of flying on a rocket-powered spaceplane and spending a couple minutes in weightlessness, wear off? Granted, at least a couple million high-net worth individuals are currently very interested in paying for such a service. But a half-a-million-dollar seat to space may seem less worthwhile after a few thousand people have already been. An imperfect but helpful comparison is the grueling, roughly $50,000 experience of summiting Mount Everest. More than 6,000 people have done that, and the endeavor is overcrowded – not fading.

Virgin Galactic's turning point, therefore, is not flying its first passengers. It's flying the 50th, 100th and 1,000th. And we've seen just how hard that can be, as Blue Origin's New Shepard remains grounded, despite multiple successful crew flights, after a cargo launch's failure. Until any suborbital space tourism company can achieve consistency, the business model doesn't add up.

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