How can you assess the economic feasibility of airport expansion projects?

1 Demand and supply analysis

The first step is to analyze the current and future demand and supply of airport capacity and services. You need to estimate the passenger and cargo traffic, the aircraft movements, the terminal and runway utilization, and the level of service and quality of your airport. You also need to consider the demand and supply of competing or complementary airports, as well as the potential impact of alternative modes of transportation. This analysis will help you identify the gaps and opportunities for airport expansion, as well as the optimal scale and timing of the project.

2 Cost-benefit analysis

The second step is to conduct a cost-benefit analysis (CBA) of the airport expansion project. A CBA compares the present value of the expected costs and benefits of the project over its life cycle, taking into account the social discount rate, the inflation rate, and the risk and uncertainty factors. The costs include the capital and operating costs of the project, as well as the external costs such as noise, pollution, congestion, and land use. The benefits include the direct and indirect benefits of the project, such as revenue, employment, productivity, tourism, and consumer surplus. A CBA will help you determine the net present value (NPV) and the benefit-cost ratio (BCR) of the project, which indicate whether the project is economically viable or not.

3 Sensitivity analysis

The third step is to perform a sensitivity analysis of the airport expansion project. A sensitivity analysis examines how the results of the CBA change when one or more variables or assumptions are altered. For example, you can test how the NPV and BCR of the project vary when you change the demand growth rate, the cost escalation rate, the discount rate, or the environmental impact. A sensitivity analysis will help you assess the robustness and reliability of the CBA, as well as identify the key drivers and risks of the project.

4 Stakeholder analysis

The fourth step is to conduct a stakeholder analysis of the airport expansion project. A stakeholder analysis identifies and evaluates the interests, expectations, and influence of the various parties involved or affected by the project. These include the airport authority, the airlines, the passengers, the local community, the regulators, the investors, and the suppliers. A stakeholder analysis will help you understand the potential benefits and costs of the project for each stakeholder group, as well as their level of support or opposition to the project.

5 Scenario analysis

The fifth step is to apply a scenario analysis of the airport expansion project. A scenario analysis creates and compares different possible future outcomes of the project, based on different combinations of variables and assumptions. For example, you can create a best-case scenario, a worst-case scenario, and a most-likely scenario for the project, and compare their NPV and BCR values. A scenario analysis will help you evaluate the range and probability of the project's economic performance, as well as prepare for contingencies and uncertainties.

6 Decision analysis

The final step is to use a decision analysis of the airport expansion project. A decision analysis integrates the results of the previous steps and helps you make a rational and informed decision about whether to support or oppose the project. You can use various decision criteria and tools, such as the payback period, the internal rate of return, the break-even point, or the decision tree, to compare the project with other alternatives or options. A decision analysis will help you justify and communicate your decision, as well as monitor and review the project's progress and outcomes.