The optimal time to invest in the new Montijo airport in Portugal

Gualter Couto, Pedro Pimentel and André Oliveira

Spatial Economic Analysis, 2022, vol. 17, issue 1, 34-46

Abstract: Lisbon Airport, the most important in Portugal, has reached its capacity due to an enormous boost to the tourism sector. To address this, a new airport in Montijo, which would receive point-to-point flights, has been proposed. This article assesses the optimal time to invest in a new airport using real options analysis and utility theory. It also considers the option to defer and the benefits of clarifying uncertain demand. The results show that the investment opportunity value is superior to the net present value, and it would be better to defer the investment until demand reaches the threshold. The decision to invest is contingent on future demand recovering following the negative impacts of the COVID-19 pandemic on the air transport sector. This paper contributes to the literature by empirically assessing an infrastructural investment project that has major implications for the social welfare of Portugal.

Date: 2022
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DOI: 10.1080/17421772.2021.1934525

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