Commercial Space Stations : Big Bet or Sure Win?

Last year, NASA awarded Blue Origin, Nanoracks, and Northrop Grumman $416 million in contracts toward the study of designs of commercially-operated space stations. With the ISS currently planned for retirement by 2031, and following the growing commercialization of LEO, its government owners are looking at potential replacements. Space tourism is publicized as the next commercial opportunity for these orbital outposts.

The orbital travel & tourism market has indeed been heating up, with 14 passengers flown or booked by commercial players in 2021, generating $784 million in ticket revenues alone, as estimated by NSR.

However, with several companies pursuing orbital crew launch capability, investment from both the public & private sectors ramping up, the big question is: “Are space stations commercially viable?”

NSR’s Space Tourism & Travel Markets, 3^rd Edition report forecasts approx. 250 passengers to fly to low Earth orbit (LEO) over the next decade, generating over $13.3 billion in cumulative revenues. These passengers include three categories: tourists, commercial astronauts, and government astronauts. Most passengers in the near-term will be government astronauts from NASA and other space agency members of the ISS,  flying or booking with SpaceX, Boeing, and brokerage firms such as Space Adventures. Commercial astronauts include such missions as Inspiration 4 and the upcoming Axiom mission.

Handover from Government to Commercial

Similar to most satellite & space markets, capabilities began within the government sector, and have now been growing from the commercial sector. The industry has shifted from a G2G to a B2G phase. The hope of many launch service providers and commercial space station operators is that the market will continue to shift toward a B2C phase and tap into a much higher addressable market. However, while addressable demand remains high, the 2,100+ estimated capable of paying $50 million+ per ticket over the decade is relatively small. Slow and expensive technology development, a lack of launch options, high ticket prices, and shifting government priorities are severely constraining the market as well.



Governments have begun shifting their focus to the Moon, developing the technology to send humans back and it raises the question: how active will these same governments be in LEO? While it is possible that government astronaut programs will expand to feature crew in both destinations, it is equally possible that the Moon will take precedence. As such, commercial operators in LEO may need to compensate through serving commercial astronauts and tourists.

Fortunately, commercial astronaut missions are on the rise. Inspiration 4, and the upcoming Axiom flights, demonstrate a growing demand for non-government missions. This opportunity is driven by science, research, and entertainment sectors, with commercial astronauts wishing to test or film manufacturing, biological, and physical properties in weightlessness. One can look at the parabolic flight industry as an example. Each year, companies like Zero G and Air Zero G fly thousands of passengers, primarily driven by government-sponsored scientists. However, there is demand outside of the public sector, and is expected to form the industrial framework by which future commercial space stations will operate. High industrial interest from pharmaceutical, manufacturing, and other research firms, as well as filming in space are preparing to form the majority of commercial astronaut demand, continuing research in-orbit, building off of decades of ISS experience.



Finally, the purely commercial, tourist sector remains a large opportunity, with demand to fly to orbit rarely diminishing across surveys. However, demand is not the problem.

Commercial Supply not a ‘Hail Mary’

To begin with, there are few launch options. Currently, only SpaceX is available, and while their flight cadence is increasing, competition is lagging behind. While Blue Origin’s New Glenn may fly by late 2022, timelines may slip even further. This lack of launch options not only does limits availability and access, it does little to drive down prices.

Orbital flight ticket prices have dropped significantly since the Space Shuttle, but are still over $60 million per seat. On top of that, if you wish to stay on the ISS, NASA charges $35,000 per night. These prices significantly impact the addressable market, limiting the tourist segment to the smallest potential opportunity.

Examining the financial prospects of a commercial space station reveals some daunting challenges. First, the CAPEX. According to data from the early 2010s, the ISS cost $150 billion to build. Of course, the ISS was constructed some time ago and over a long period of time through many changing scenarios, none bigger than the next iteration. Commercial operators are expected to do much better. As an example, Northrop Grumman was selected by NASA to build a habitation module for the lunar gateway, via a $935 million contract. Let’s assume any commercial space station will cost about the same.

While orbital flight ticket prices go for $60 million+, and despite efforts made in increasing launch cadence and operations, via reusable vehicles, launch costs remain high, and so too do their prices. As such, it is likely that little of this revenue will go back toward the station, instead relying on “hospitality” charges to pay back its use. However, $35,000 per night is a small amount, especially considering most ISS visits have lasted only a week or two.

NSR’s forecast of the number of passengers to fly to orbit is based on a bottom-up approach, focused on vehicle availability. Assuming Boeing’s Starliner and Blue Origin’s New Glenn begin operations soon, and SpaceX continues, and even increases, cadence thanks to Falcon and Starship, there are still only 251 passengers expected to fly to orbit, cumulatively, over the next decade.

When one runs the numbers, considering a $1 billion space station, the number of available passengers, and assuming that all passengers fly to a single station, one finds that said station would need to be occupied for 78 continuous years to break even. If one assumes that all passengers pay for a full year’s stay, that drops the return on investment to 5-6 years. This is fantastic, except for 1 problem: operating costs.

NASA estimates that the costs to keep the ISS running reach almost $3 billion per year, hence the upcoming retirement. Even reducing these costs by 67%, the station will not break even until after the decade. In fact, the lowest operating costs to break even before 2031, under these assumptions, would have to be lower than $150 million per year. Assuming that a sleek, commercial space station only costs $500 million to build, annual operating costs would need to be lower than $250 million.

This is not to say that commercially-operated space stations are financially impossible. However, when one considers the historical context, the trends which have developed in this sector, the ambitions, costs, technological readiness, and customer demand, such prospects are very challenging, especially if several players pursue separate space stations.

Business models would need to change. In some cases, this may have already begun. Blue Origin, as the lead for their Orbital Reef space station, could find ways to incorporate hospitality & launch costs into their ticket prices, remaining competitive while also providing a return. SpaceX & Boeing, not currently developing stations, could partner with manufacturers in innovative ways.

Outside investment is another route. Whether by philanthropists, the film industry, continued government grants, or support from the various interested science sectors, space stations could well be funded through a collaborative effort. However, this is not the norm, and remains an unreliable source of funding.

Bottom Line

As the commercialization of LEO continues, and the ISS gets closer to retirement, interest in commercially-operated space stations will continue to rise. While the prospect is interesting, potentially serving numerous tourists, commercial astronauts, and government astronauts, space stations remain financially challenging. Large CAPEX, long timelines, limited launch vehicle availability keeping access low and prices high, space stations will not survive on current business models. Innovation and partnership, and a higher collaboration between the public and private sectors, will be required to keep stations flying and ensure it’s a win for both governments’ current owner and future commercial operators.