Main Engine Cut Off

Each milestone achieved in the march towards launch vehicle reusability brought with it a slew of “This is the moment!” articles. The technical achievements—the first successful landing of Falcon 9, the first relaunch of Falcon 9, and so on—have all been huge moments, to be sure.

But, at the risk of sounding like an Ariane executive, the true inflection point is an economic one. Not an arbitrary economic milestone like making launch costs half of what they are today—it’s about the business model of reusability and how it’s integrated into a company’s operations.

Pricing

The current pricing SpaceX uses makes no sense in the high-level, long-term view. It’s pretty obvious that the model grew out of an expendable-minded era, and that SpaceX is sticking to it because the market itself has not yet changed its thinking.

If you go to buy a launch on a Falcon 9 today, you have two choices: $60 million(ish) for a flight with a new first stage, or $50 million(ish) for a flight with a previously-flown first stage.

The model should look like this: $60 million for a flight in which SpaceX cannot recover the first stage, and $50 million for a flight in which SpaceX can recover the first stage. And to push the model even further, a flight with a possible return-to-launch-site recovery should cost less than a flight which requires the droneship.

To use Elon’s favorite ill-fitting, horribly-tortured example of a plane flight: your ticket price should be based on your destination, fuel usage, and cargo requirements rather than based on where that plane’s previous flight was headed.

In this new model, a customer wouldn't know and, more importantly, shouldn’t care whether the first stage that flies their payload is making its first or fifth flight. That decision becomes part of SpaceX’s internal fleet management operations, the same way that hardware and procedural upgrades are handled today. Iridium-2 flew with new titanium grid fins—admittedly a nearly-irrelevant piece of hardware during ascent—and I’m sure that wasn’t commented on within their launch contract.

In order to implement and embrace this new model, at least two main areas need to be addressed.

Reliability and Operations

It’s not a shocking statement to say that the reliability of Falcon 9 needs to improve quite a bit overall for any of these economic considerations to matter. Two lost vehicles and payloads in two years is horrible, and SpaceX needs to avoid anything like that happening for quite some time to build trust.

Moreover, SpaceX needs to prove that reused stages are just as—if not more—reliable than a brand new stage. That’s the single biggest mental block the market at large needs to get over for the era of reusability to really come into its own.

And while SpaceX has gotten far more stages back than they had predicted, they’re not without loss. Given the sea conditions they land in from time to time, that’s to be expected.

For the new model to be successful, SpaceX needs to get their reliability of recovery to a point where they lose as few stages as possible, but they also need to get their operations to a point where they can absorb the occasional loss. They need to be getting enough flights out of each stage to amortize its production and eventually turn a profit from it, so much so that a recovery loss of a first-flight stage doesn’t set them back drastically.

Timing

With all that said, when should SpaceX make the pricing change? Surely 2017 is too soon—the final version of Falcon 9 isn’t yet flying, the recovery operations are still being perfected, their additional inspection, refurbishment, and storage facilities at the Cape aren’t yet ready, and the government is still figuring out how to deal with flown stages.

But at some point in the very near future, SpaceX will have to decide that enough of the above to-do list is complete, that their recovery rate is high enough, and that they’ve proven the reliability of previously-flown stages.

It’ll be a big, bold moment. It’ll probably scare off some customers, and almost everyone will be saying that it’s far too soon to shift the reusability mindset.

But it’s exactly what SpaceX needs to do.