Shares of Virgin Galactic Holdings Inc. (SPCE) surged over 30% on Thursday after the company unveiled plans to reduce costs and temporarily pause spaceflight operations. The stock jumped from $1.56 to over $2 as investors reacted positively to Virgin Galactic’s aim to conserve cash while developing its next generation of spaceships.
Virgin Galactic announced it will wind down flights of its existing VSS Unity spacecraft in mid-2024. The company will then focus resources on finalizing assembly of its new Delta class spaceship line.
The Delta class ships represent the future of Virgin Galactic’s space tourism business. Pausing VSS Unity flights will allow engineers to concentrate on getting the Delta fleet ready to fly tourists on suborbital trips to the edge of space.
Cutting Costs to Fund New Spaceships
To finance the spaceship transition, Virgin Galactic is cutting costs substantially. This week the company laid off around 18% of its workforce, about 185 employees. The reductions will generate $25 million in annual cost savings.
The job cuts come as Virgin looks to trim expenses and streamline operations during the fleet transition. Management aims to direct as much capital as possible toward completing work on the Delta class vessels.
Virgin Galactic also announced it will reduce the flight rate of its current VSS Unity ship. Since June, VSS Unity has been flying commercial tourist missions roughly once per month. Going forward it will shift to quarterly flights before fully standing down in 2024.
Fewer VSS Unity flights will conserve rocket fuel and other operating costs. These savings can be redirected to accelerate progress on the new generation Delta ships.
VSS Unity Flights Winding Down
VSS Unity began commercial service in July 2021 and has completed five revenue-generating passenger flights so far. It will continue making quarterly trips to the fringes of space until its retirement in mid-2024.
So far this year VSS Unity flew its first fully private astronaut mission in June. This was followed by its first Italian researcher flight in September. Both missions generated crucial revenue for Virgin Galactic.
But VSS Unity is only capable of flying four passengers to space on each trip. The Delta class spacecraft will increase that capacity to six passengers. This 50% bump is critical to ramping up Virgin’s space tourism business.
The company is aiming to begin Delta test flights from its New Mexico spaceport in 2025. With a smoother flight profile and more spacious cabin, the Delta promises a superior overall experience compared to VSS Unity.
Stock Surges on Cash Conservation Plan
Virgin Galactic’s shares have suffered in 2022, falling over 50% year-to-date before Thursday’s 30% pop. The market responded favorably to management’s decisive actions to reinforce its financial position.
The workforce reductions and spaceflight pause will slow Virgin’s cash burn rate while buying time to ready the Delta fleet. With its existing cash balance, the company has ample runway to execute the transition.
Pausing VSS Unity flights will allow Virgin to upgrade ground infrastructure at its spaceport to support Delta operations. By winding down one program and preparing for the next, Virgin Galactic hopes to hit the ground running once the Delta ships are flight ready.
If executed successfully, the cost cutting and spaceflight hiatus could put Virgin in position to ramp up flights profitably after the Delta class ships come online. With improved ships unlocking expanded market opportunities, Virgin Galactic aims to soar both literally and financially over the long term.