Investments Under Uncertainty in Air Transportation: A Real Options Perspective

Due to the cyclical nature and the inherent technological, market and political uncertainties of the aviation industry, it is challenging to make air transportation infrastructure decisions. In such an environment, a flexible strategy for infrastructure delivery is suggested as a means of managing the risk. This paper uses an evaluation methodology based on system dynamics and Monte Carlo stimulation in a real options framework to evaluate different flexible capacity delivery strategies. A hypothetical yet common situation of an airport with limited capacity and uncertain demand growth is used to illustrate these strategies, which vary in terms of the timing of the investment, size of the capital expenditure and time to deliver the capacity expansion. Findings suggest that strategies with small capacity increases have a better chance of success, and that a short time to increase capacity results in a higher expected value. If capacity increases are large, a long maturity date is preferred. Flexibility is most valuable in uncertain situations or when large capacity expansions are planned.

• Record URL:
  http://journals.oregondigital.org/trforum/article/viewFile/771/666
• 
• Summary URL:
  http://journals.oregondigital.org/trforum/article/view/771
• Availability:
  • Find a library where document is available. Order URL: http://worldcat.org/issn/10461469
• Authors:
  • Miller, Bruno
  • Clarke, John-Paul
• Publication Date: 2005

Language

• English

Media Info

• Media Type: Print
• Features: Figures; References; Tables;
• Pagination: pp 61-74
• Serial:
  • Journal of the Transportation Research Forum
  • Volume: 44
  • Issue Number: 1
  • Publisher: Transportation Research Forum
  • ISSN: 1046-1469
  • Serial URL: https://trforum.org/journal-of-the-trf/
• Publication flags:

  Open Access (libre)

Subject/Index Terms

• TRT Terms: Air transportation facilities; Airport capacity; Capital expenditures; Decision making; Evaluation and assessment; Infrastructure; Investments; Methodology; Monte Carlo method; Simulation; Strategic planning; Uncertainty
• Uncontrolled Terms: Real options; System dynamics
• Subject Areas: Aviation; Economics; Finance; Terminals and Facilities;

Filing Info

• Accession Number: 01005795
• Record Type: Publication
• Files: TRIS
• Created Date: Oct 20 2005 11:11PM