SPCE

Virgin Galactic Is Raising Prices and Customers Are Still Buying

Virgin Galactic (NYSE: SPCE) achieved a key milestone in 2023 as it looks to build a sustainable space tourism business. But it is still years away from running a profitable operation. A key issue going forward will be the price of a ticket to ride Virgin Galactic's spacecraft. If early price test results are any indication, there's a lot of room to grow. Here's what has been going on.

Virgin Galactic finally got customers into space

Up until 2023, Virgin Galactic was just a big idea. The hope was that the company could build ships capable of taking civilians into space. In 2023 that dream became a reality. For a short period of time the company was launching people into space once a month, truly proving that the concept of a space tourism business was something that it could turn into reality.

The outside view of a Virgin Galactic spacecraft taking off.

Image source: Virgin Galactic.

That said, Virgin Galactic is very clear that it isn't at the point where it can operate a space tourism business profitably. That will require a second generation of spacecraft, which won't be up and running until 2026 at the earliest. With a still-huge capital investment ahead of it (building innovative spaceships isn't cheap), Virgin Galactic has been focusing on conserving cash so it can survive until that new craft is flying. That has resulted in a reduced flight schedule of once per quarter.

Here's where things start to get a little interesting. When Virgin Galactic was just a big idea, it asked people to buy advance tickets for $200,000. Today, Blue Origin, which Virgin Galactic views as its closest peer, is charging something closer to $1 million per ticket on its ships. Virgin Galactic, however, has a backlog of advanced customers to work through. And yet, it has still been able to do some price testing.

How much for a ticket to ride?

For a while Virgin Galactic had two prices -- one for scientific research (sort of like business travelers) and another for general consumers. Business class costs $600,000, with consumers paying $450,000. The big takeaway here is that early ticket buyers were given a big discount, even though the price rose from what could be termed teaser prices in the very early days.

As the company has begun to start regular flights, however, it has realized that there are plenty of people who want to fly into space. As a result, it has increased consumer ticket prices so they are on par with business customers. Basically, there's just one ticket price, and it is $600,000. That's still well below the $1 million that peer Blue Origin is charging, which has presented a big testing opportunity.

Customers signed up for Virgin Galactic space flights way before flights were actually taking place. Life situations change, and scheduling issues get in the way. Some early ticket buyers have been unable to actually take part in the flights they signed up for. This has opened up the possibility for Virgin Galactic to offer empty seats at different prices. When it had such an opportunity, Virgin Galactic has been able to charge $1 million, which it called a "market rate" during its fourth-quarter 2023 earnings conference call. This suggests that Virgin Galactic's revenue opportunity is larger than it may seem based on historical ticket prices.

Some caveats to the price testing

It is good news that Virgin Galactic has been able to sell seats at materially higher prices than it has historically charged. The bad news is that it still has a backlog of customers to work through at lower ticket price points. That's not going away quickly, given the quarterly flight cadence. So the big story is still the company's efforts to get its next-generation ship, which can carry more customers, off the ground in 2026. But, assuming it does just that, the revenue potential could be materially higher than it looks like it is today.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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