The Coming Giant Airship Industry as an Investment Opportunity, Part 2

The Coming Giant Airship Industry as an Investment Opportunity, Part 2

The Coming Giant Airship Industry as an Investment Opportunity, Part 2

Post 1 in this series highlighted evidence that the world is on the verge of a giant airship renaissance. It stressed the wide range of market applications that make this an exciting investment opportunity. Here we drill down on intercontinental shipping where the potential demand is dramatic. 

An earlier post, “Airships in Intercontinental Shipping: The Demand Side,” indicated that the foreseeable demand for airships in intercontinental shipping could keep 1,500 to 10,000 airships busy. A subsequent post, “Airship Costs in Intercontinental Shipping,” explored the supply side of future airships in intercontinental shipping.

The economic model offered in this post explores the world-transforming impact of economies of size. Cargo airships could follow the pattern set by container ships. The size of container ships has doubled every decade since 1960. The consequent fall in ocean freight rates set off an acceleration in world trade and globalization that transformed world trade.

Cargo airships may take decades of work to reach maturity, unless the pressure to reduce carbon emissions quickens the pace. Once the ball gets rolling, the momentum of increasing trade opportunities will be self-reinforcing. With each increment in airship size, costs fall, profits rise, and business booms.

Market Size

Approximately speaking:

At technological maturity, cargo airships could ship goods at a cost per ton-mile roughly comparable to long-haul trucking.  Though slower than cargo jet planes, electric airships would be considerably cheaper and have zero carbon emissions.  Based on these assumptions, some reasonable inferences can be made about global cargo airship demand. Cargo airship demand should certainly exceed ~140 billion ton-miles per year at truck-competitive prices, capturing most air freight. By taking higher value containerized marine freight, and generating new trade, they might achieve volume within an order of magnitude of bearing the same ratio to the world GDP as US trucking does relative to US GDP, or roughly 10 trillion ton-miles

Airships would carry higher-value consumer goods, like shoes and garments, perishables such as fruits and vegetables, meat and dairy, bulky goods like cars, furniture, and home appliances. Many existing intercontinental trade flows would switch to airships, and new intercontinental trade flows would be induced by the availability of airships. But let’s model some scenarios.

The Setup: Assumptions

An exploration of future airship scenarios starts with a global demand curve for shipping services capturable by cargo airships. Assume that with competing modes available and options for onshore substitution, freight demand will be elastic, with a constant elasticity of demand of 2.38 between  endpoints based on real-world data. This means that volumes grow over twice as fast as the percentage change in price. This demand curve implies, for example, that at $0.70 per ton-mile, the quantity of airship shipping services demanded  is 100 billion ton-miles. This is less than total air cargo because passenger airplane belly space will always be used.

Relative to the earlier post on airship costs, the assumptions of this model are more conservative in terms of annual utilization. The capital cost assumptions are a bit more optimistic based on an extrapolation from the Zeppelin NT (with help from an assumed moderate learning curve). Costs are assumed to be 15 times materials, thus scaling with the airship’s mass even though most of the cost is labor.

The model is explicit about the airship’s dimensions. The fineness ratio (length over maximum diameter) is assumed to be 5. In the model, a 500-foot-long airship costs $34M to build and has a payload of 17 tons. Airships would travel 300 days/year, 18 hours/day, at 80 miles per hour, with 70% capacity utilization, on average.

Readers can download the spreadsheet here to see all the assumptions. Comments are enabled, so don’t be shy about asking questions!

These assumptions provide a basis for an exercise in extrapolation, in which giant airships become available at various sizes, with related cost and performance characteristics. Here is a sample of the model’s predictions:

  • At a price of $1 per ton-mile, cargo airships would get 40 billion ton-miles’ worth of business, roughly 30% of cargo planes’ business. The assumption is that most shippers prefer speed if airships don’t offer a cost advantage.
  • At a price of $0.40 per ton-mile, cargo airships get almost 400 billion ton-miles’ worth of business, much more than cargo planes because of a large price advantage, but far less than cheaper trucks and ships.
  • At a price of $0.20 per ton-mile, airships would get 2 trillion ton-miles’ worth of business globally—still less than trucks, because they can’t offer the same last-mile convenience, even though they would be price-competitive.
  • A 700-foot airship would cost $67 million capex and $0.87 per ton-mile for all costs, with a payload of 102 tons.
  • A 1,000-foot airship would cost $138 million capex and $0.41 per ton-mile for all costs, with a payload of 416 tons.
  • A 1,500-foot airship would cost $319 million capex and $0.22 per ton-mile for all costs, with a payload of 1,718 tons.

The Big Takeaway: Scale Up for Market Dominance

These assumptions feed through the model into a dramatic conclusion, which is shown in Figure 1. On the lower axis is length, and the airship’s other dimensions are assumed to scale with it. The blue curve, against the primary vertical axis, shows how costs per ton-mile fall with airship size. The orange curve, against the secondary vertical axis, shows how quantity demanded rises as size grows.

Figure 1

This demand curve implies that some demand for airship shipping services would exist even at prices above air freight. Reasons for this include handling advantages, bulky commodities, green preferences of shippers, novelty, and storage costs saved. These are niche demands. Airships only rival airplanes’ volume when they reach a size to achieve a substantial cost advantage.

“Small” airships of 600 feet long or less might thrive and become pretty numerous but they would hardly put a dent in cargo airplanes’ business until length reaches 700 feet. By the time airships reach 1,000 feet long, they would capture market share from dedicated cargo jets and ships, totaling over 360 billion ton-miles. Even that would still leave airships with a small footprint in global trade volumes.

The economies of size would remain far from exhausted. At 1,500 feet long, airships might capture market share from long-haul trucking and a range of higher-value merchandise from container ships. Worldwide demand for airships’ shipping services would be over 1.6 trillion ton-miles, with over 3,100 of these giants in the skies.

At 2,000 feet long, each airship would cost nearly $600 million, with a payload over 4,400 tons, producing 1.3 billion ton-miles per year, and economies of size would have driven per ton-mile costs down to $0.148. Global airship shipping would be 4.04 trillion ton-miles. This is still a small fraction of global maritime shipping by volume, though it would probably exceed it by value of shipped goods and carrier revenue. At 2,500 feet long, demand would nearly double again, and at $0.113 per ton-mile, airships would be well below than trucking freight rates.

Figure 1’s projections of the potential airship industry are exciting, even though the assumptions  don’t let airships even begin flying internationally until airships hit 500 feet. Some accounts say that LTA’s Pathfinder 1 will be just over 400 feet long. Flying Whales is listing its LCA60T at 200 meters long (650 feet). They will be the largest aircraft in the world, and at the margin of breaking into intercontinental shipping. But it is coming: the math shows the way.

Still Skeptical?

The great thing about an explicit model is that its conclusions follow mathematically from assumptions that can be tested. As airships get bigger, they will, according to this model, continually get cheaper per ton-mile and compete for more market share until they dominate their segment of international commerce.

It is unlikely that the world’s helium supply is sufficient to support all these airships. Ultimately, the airship industry will need to transition to hydrogen, as it scales up. Hydrogen science has advanced sensors and systems that can safely contain and manage any risks. Once hydrogen is embraced, these projections might underestimate the airship future.

  • The cost of inflating airships with hydrogen is less than 10% of the cost of helium and gains 8% more gross lift.
  • The price of hydrogen for fuel and lift is projected to continue falling as renewable energy productivity keeps improving.
  • The assumed required rate of return in airship investments is 10%, but real interest rates today are well below that.
  • Insurance does not exist until the risk is measured. Premiums will decline as experience grows and claim rates are observed. Airships are inherently safe, notwithstanding the popular misconception, which will increase investors’ rates of return.
  • Airships might form “convoys,” like the geese in which a leader suffers full drag and the followers exploit lower drag and fuel burn in the slipstream.

In any debate, the burden of proof can bounce back and forth like a tennis ball. Whose court is the ball in now? It is the skeptics’ turn to articulate why large cargo airships cannot become a major transport mode.

The Path Ahead

Privileged, intelligent, empowered people have a duty to try to assess and realize possibilities for bettering the condition of humanity. A plausible case exists that airships can be the transportation innovation that defines the 21st century. Powerful people of good will should either rebut that case, or act.

The third post in this series will explore what immediate actions public and private actors can take, with an emphasis on the private investor perspective. Meanwhile, this post stands as a challenge to public opinion to recognize that the giant airship renaissance stands ready to rain great and manifold improvements on humanity if steps are taken to unleash it.

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