Flexible Design of Airport System Using Real Options Analysis - MIT

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12/14/2007 1.231 Planning and Design of Airport System Dai Ohama Costs for the operation and maintenance are categorized into the ones above. From the past disclosed information by the government, operating and maintenance cost in all airports in Japan in 2005 was ¥147.4 billion. [10] I assume that these costs depend on the scale of air traffic. The whole air traffic in Japan in 2005 was 1,431,000 and 300,000 in Tokyo Int’l Airport, which is about 20% of the whole traffic, so the operating and maintenance costs for Tokyo Int’l Airport in each year is assumed ¥29.48 billion, which is also assumed equally for the current three runways. So the operating cost and maintenance costs for the one runway is one-third of ¥29.48, which is equal to ¥9.84 billion. In addition, in the current construction plan indicates that the specific maintenance cost for the runway D is ¥100 billion for the next 30 years. Thus the maintenance cost of ¥3.33 billion should also be included in the operating and maintenance cost for the new runway. Therefore, the operating and maintenance costs for the runway D are set as ¥13.17 billion. 4.1.3 Capacity of Airport According to the Ministry of Land, Infrastructure and Transport in Japan, the improved maximum capacity of the airport by the runway extension in Tokyo Int’l Airport is 40 aircrafts per hour, and it estimated this capacity can accommodate 87 million passengers per year. [2] So the capacity in terms of the number of passenger in this airport is 87 million. 4.1.4 Discount Rate Discount rate is the opportunity cost of capital, and it can be calculated by the capital asset pricing model (CAPM). CAPM requires the risk-free rate of interest, the sensitivity of specific project or company to stock price, and the expected rate of return of the market. However, the government used the discount rate of 4% when it assessed not only this project but also any airport related project. [11] Thus, the discount rate of 4% is also used in this case study. 4.2 Uncertainty in System There are usually a lot of uncertainties in large-scale engineering systems which include technical change, economic change, regulatory change, industrial change, political change, and so on. [4] This case also includes a lot of uncertainties such as demand of the number Term Project: Flexible Design of Airport System Page 14 of 22
12/14/2007 1.231 Planning and Design of Airport System Dai Ohama of passengers, capital investment in the future, the operating and maintenance costs, and unexpected events in the future. For the sake of the simplicity, I set only demand of the number of passengers as uncertainty. When forecasting the number of passenger in airports, the time span should be considered at most 20 years span and the volatility, which is the range of the chance the demand is higher or lower, should be considered by plus or minus 50%. [12] 4.3 Demand Forecasting According to the government estimation, it forecasted the demand of the number of passengers as 73.2 million in 2012, 80.3 million in 2017, and 85.5 million in 2022. [2] 90.00 Past and Predicted Number of Passengers at Tokyo Int'l Airport 80.00 Number of Passengers 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2012 2022 Year Figure 4-2 Demand Forecasting Source: Ministry of Land, Infrastructure and Transport in Japan [2] This estimation was based on the estimate of the total population in Japan, the estimate of GDP and other several factors. [13] However, forecast is always wrong. The table below is comparison of 10 years forecasts of international passenger to Japan with actual results. [12] These results clearly show that forecast has been always wrong. In addition the forecast of the total population in Japan and GDP are also very difficult to assess. Thus, the demand forecast above could be wrong. Term Project: Flexible Design of Airport System Page 15 of 22
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