When Elon Musk founded SpaceX in 2002, he celebrated with the company's eight employees by inviting a mariachi band to come and play in their empty office. It was a relatively unassuming start for a company founded to make humanity a “true spacefaring civilization.” Yet for all the attention the company has garnered recently, far less has focused on the remarkable degree to which competition has spurred the 21st century's space race.
Impact of The United Launch Alliance
For nearly a decade, Lockheed Martin and Boeing were the only major American players in the launch vehicle market. After years of fierce competition, the two companies agreed to join forces and created United Launch Alliance (ULA) in 2005. At the time ULA’s position seemed unassailable—Lockheed Martin and Boeing employed nearly 300,000 people across the world, and had combined revenues of over $90 billion. In addition, their partnership essentially gave ULA a monopoly over US military launches.
But as so often happens in a non-competitive environment, prices quickly began to soar. By 2012, the price that ULA charged the military per mission had increased 58 percent above the baseline estimates in 2004 and 2007. The rapid increase spurred a governmental review of ULA’s program, which found that despite dealing with fewer launches over time, ULA’s costs continued to grow. The review stated that "the final cause is poor program execution due to an environment in which little incentive for cost control, or threat of termination exists."
Introducing Competition into the Market
Meanwhile, SpaceX had been forging ahead towards its goal of creating cost-effective launch vehicles. Despite facing several setbacks, SpaceX successfully launched the world's first privately funded and developed rocket in September 2008. Several months later, SpaceX was awarded a NASA commercial cargo contract to resupply the International Space Station (ISS) as part of the Commercial Resupply Services (CRS), and its share of the launch vehicle market has been increasing ever since.
One of the keys to SpaceX’s success has been its ability to substantially undercut the prices of its competitors. While SpaceX lists its Falcon 9 rocket starting at $62 million a flight, the US Air Force budgeted $422 million for a single ULA flight in 2020.
This trend has held true within NASA's CRS program as well. According to a NASA report released in April, the average cost of a SpaceX mission to resupply the ISS was $152.1 million, compared to an average of $262.6 million for its competitor Orbital ATK. Indeed, the audit also noted that SpaceX’s competitive pricing “has contributed to lower prices for NASA launches,” with the cost for the ULA standard Atlas V rocket decreasing by around $20 million per launch after SpaceX’s Falcon 9 rocket became eligible to compete for launch contracts.
SpaceX’s dramatic price increase could provide an ideal opening for other space companies.
These shifts will all but eliminate the price gap between Orbital ATK and SpaceX.
But while Space X's meteoric rise has been fueled by its comparatively low-cost, it appears that that all may be about to change. In the same report, the authors revealed that SpaceX is raising the price it will charge NASA for future resupply missions to the ISS by around 50 percent. This comes at a time when SpaceX’s primary competitor for resupply missions, Orbital ATK, recently announced a 15 percent reduction to its costs. These shifts will all but eliminate the price gap between Orbital ATK and SpaceX.
SpaceX’s dramatic price increase could provide an ideal opening for other space companies. In addition to Orbital ATK and SpaceX, Sierra Nevada Corporation received a contract to resupply the ISS as part of NASA's second round of CRS. Although relatively new to resupply missions, Sierra Nevada is seen as a high-quality competitor to its more experienced cohorts.
It's even possible that new contenders could enter the fray going forward. Included in the contract NASA signed with these companies is an on-ramp clause, which allows companies outside the contract to place bids to compete for future cargo missions. With companies like Jeff Bezos’ aerospace company, Blue Origin, rapidly ramping up investments in commercial space travel, the landscape seems ripe for competition.
Given renewed national interest in space travel, and burgeoning investment flows into aerospace companies, it's clear that we are entering into a new golden age of space travel. As the US government moves to increase spending on NASA, it would do well to remember that competition is what will get us to the stars. The government should not play favorites with any company in particular, but rather foster a competitive bidding environment to accelerate humanity’s future.