Space

Lies, Damned Lies, And Launch Costs

7 Comments

I gave my talk about 10 AM. The briefing can be downloaded here. Clark Lindsey and Henry Cate blogged it.

I should note (and I appreciate that he was in a hurry) that when Clark writes:

EELV- drop in number of commercial flights expected raised marginal costs because of low flight rate.
— Wiped out savings from hardware improvements.
– Expendables have high marginal costs
– Reusables have low marginal cost IF they have high flight rates.

The drop in the commercial flight rate didn’t increase EELV marginal costs, it increased average costs (which are what the price has to be based on, other than loss leaders for marketing). If you price below your average cost, you’ll lose money. Increasing rate doesn’t help, because you can’t make it up in volume.

Similarly, reusables have low marginal cost regardless of flight rate. Increasing flight rate reduces average cost per flight, allowing it to approach the marginal cost as the rate increases.

7 thoughts on “Lies, Damned Lies, And Launch Costs”

  1. Terrific semantic content … I know you threw it together with literally one day’s notice. Would be great if you have the time/bandwidth to reformat it with graphs & other visuals.

    (Regular maintenance & repair are arguably marginal costs of driving a car, but it’s still a good analogy — shows how much smaller/simpler marginal costs are.)

  3. Jay,

    I agree that maintenance issues (oil, tires, depreciation) significantly add to the costs. Say a 20K car goes 200K miles – it’s 10 cents a mile! Assume $2 / gallon, 20 MPG, also 10 cents. In 1974, with my 1968 Ford, assuming 100K mile lifetime, the cost per mile of just depreciation was also more significant than gas.

    Brock –

    Life Cycle Costs

  5. Which is why highly-efficient cars are usually not worth the price premium.

    Or, as Rand has pointed out repeatedly, LOX is cheaper than milk.

  7. If you price between your average and marginal cost and you win more business, you make more money.

    Pricing below average cost, you might not be able to make debt payments and might consequently go bankrupt in which case many of the fixed costs for the new owner will go to zero. If you price at average cost, you might go bankrupt faster depending on the elasticity of demand.

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