I'm a huge SpaceX fan and until recently I kinda scoffed at Blue Origin, but after seeing more about it I was more impressed. (On the other hand, the New Glenn is only first-stage reusable, so they might need to get that flying well before the BFR is ready.)
Fuel is only a couple percent of the cost of a rocket launch. Rockets are expensive, and on the Falcon 9 the first stage is 80% of the cost of the rocket.
In the early days of SpaceX I saw claims that expendables were more economical because you could build them cheaper, but then SpaceX went and build reusable rockets that are also cheap; their rockets cost less than competitors even without reuse.
They're getting government business because they charge the government less than their competitors charge. The subsidy argument doesn't make sense unless it's only the commercial launches that are cheap.
There are a lot of vested interests in this industry that are strongly incentivized to say reusable rockets are no big deal. I think they'll continue to say that until the BFR flies and SpaceX drops their rates to levels far below what disposables could ever achieve.
SpaceX does still use the Falcon 9 as a disposable for extra-heavy payloads. That doesn't mean you have to throw your rocket away for all payloads, and the capacity difference isn't dramatic. And there won't be that many payloads too big for the BFR in reusable mode.
It's true that the rocket wears out eventually. SpaceX is aiming for about ten reuses initially, thus lowering hardware costs by 90%. They hope to do much better than that later.
Just looking at the hardware side without opportunity cost aonewhat misses the point. A really thorough cost analysis would need to factor in the impact on reliability, the risk of failed launches due to reused rocket stages. I assume these numbers are impossible to come by.
One other data point would be, if that's the case, how much premium SpaceX is asking for the use of virgin rockets as compared to reused ones. This would allow a rough estimation of the increase risk for failure and other costs. Again, I don't expect these numbers to be available.
The first part is obviously true. The latter, I’m not so sure —- Blue’s budget has increased dramatically over the past few years, but New Glenn flights remain rare, and New Shepard remains well in the future.
It’s interesting to ponder where Blue would have gone if SpaceX (which was founded later) hadn’t happened. I think there’s a very real chance they’d still be thrashing, talking up bits and pieces of technology but without any complete vehicles (even of New Glenn size).