Making good decisions: The case of airport land development

Abstract

Many airports are located on valuable real estate assets that can be used to generate revenues. In this respect, there are several land development options available to airport management groups, including traditional land lease arrangements as well as more direct involvement in developing real estate. Each of these options has risks and rewards associated with it and the best alternative is one that will maximise the expected return, given an appropriate level of risk. While this paper examines development options only in terms of estimated risks and rewards, the comparative results present a reasonable picture of the relative merits and magnitudes of the expected return on investment under each of the scenarios presented. However, the real value of this exercise lies in the decision-making framework that it presents, moving from a situation analysis, to an exploration of alternatives, and then to optimal decision making.