Investing in Space

New Virgin Galactic Chairman Chamath Palihapitiya says tourism spaceflights to begin within a year

Key Points
  • Virgin Galactic is projected to become profitable on an annual basis by August 2021, new chairman Chamath Palihapitiya told CNBC on Tuesday.
  • "This thing looks like a software business under the hood even though it's flying people to space," Palihapitiya says.
  • Sending the company's first tourists to space is expected to come as Virgin Galactic gets ready to go public following a merger with Social Capital Hedosophia (SCH), a special-purpose acquisition company that Palihapitiya created.
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How Virgin Galactic's space tourism venture can spur innovation in air travel

Virgin Galactic expects to be profitable two years after it begins publicly trading, with the company aiming to fly tourists to the edge of space for the first time within a year.

Richard Branson, founder of Virgin Group, and venture capitalist Chamath Palihapitiya told CNBC's "Squawk Box" on Tuesday that Virgin Galactic is projected to become profitable on an annual basis by August 2021. The pair of billionaires, who are taking the company public following a merger deal, also said Virgin Galactic is on track to fly its first customers within a year.

"Since we put two spaceships into space earlier this year, and made five new astronauts – the first astronauts to have been made on American soil since 2009 – we've had 2,500 people ask to sign up," Branson told CNBC. "The market is enormous."

Sending the company's first tourists to space would come as Virgin Galactic gets ready to go public following a merger with Social Capital Hedosophia (SCH), a special-purpose acquisition company that Palihapitiya created. He will become the chairman of the new Virgin Galactic, while the existing management team, including CEO George Whitesides, will remain in place. The combined firm will have a valuation of $1.5 billion, with SCH taking a 49% stake. LionTree Advisors is serving as Virgin Galactic's financial adviser as it seeks capital.

"We have a customer backlog of more than 600 people, more than $80 million in collected deposits already," Palihapitiya said.

Tickets for a spaceflight are priced at about $250,000 a piece. Virgin Galactic's spacecraft Unity holds up to six passengers along with the two pilots. The spaceship is dropped from a jet-powered aircraft at about 40,000 feet before firing its rocket motor, reaching over three times of the speed of sound as it climbs toward space.

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Watch Richard Branson and Chamath Palihapitiya speak about Virgin Galactic's plans to go public

Virgin Galactic is set to become the first publicly-traded human spaceflight company when it lists. The company has completed two flights to the edge of space, with the first in December and the second, which carried Virgin Galactic's first passenger, in February.

"What the team has built, and this is what was amazing to me, is a business that has software-like margins. This thing looks like a software business under the hood even though it's flying people to space. This is, I think, a really compelling risk-reward," Palihapitiya said.

Hypersonic air travel is also on the table for Virgin Galactic, according to Palihapitiya, although Virgin Galactic is likely a decade away from transporting people from one distant place on the Earth to the other. Currently, Virgin Galactic's space tourism flights return to the same spaceport from which they take off.

Branson compared the growth of the space tourism market to the early days of aviation, when transatlantic flights cost hundreds of thousands of dollars. He believes the prices for space tourism will come down even more quickly than commercial aviation did.

"Ten years from now we should see quite a dramatic decrease in our prices," Branson added.

He cited recent analyst reports showing the market for space tourism. UBS in March estimated that space tourism will be a $3 billion market a decade from now, even though the firm said it's "still at a nascent phase."

"Space tourism could be the stepping stone for the development of long-haul travel on earth serviced by space," UBS said.

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Key Points
  • Social Capital CEO Chamath Palihapitiya says he hopes his new Virgin Galactic space-tourism venture turns out as well as Tesla.
  • "If we are lucky to have the same trajectory and the same customer love, I think we would all look back and say we've done something absolutely fantastic in human technology," Palihapitiya says.
  • Palihapitiya and Richard Branson are teaming up to take Branson's Virgin Galactic public.