Revenue management of transportation infrastructure during the service life using real options

Transportation infrastructures, such as highways, railways, and airports, require a huge initial capital investment. They are often planned and constructed to serve the public for decades. Operating and maintenance (O&M) costs during the long service life of the infrastructure are another important cost component to be considered for effective revenue management. These two types of costs are relevant since superior construction quality requires higher capital investment to promote lower O&M costs during the service life. A trade-off between these has to be considered by service operations. Because traffic demand may change significantly during the service life of transportation infrastructure, service revenue may significantly deviate from an original prediction. Facing the deep uncertainty during a project’s long life, service providers (usually in the public sector) may confront great challenges to ensure desired services for travelers and a self-liquidating investment in the project (i.e., producing sufficient returns to repay the total investment in the project). Therefore, the public sector favors the involvement of private participants in financing and operating these high-risk, expensive projects. Public-private partnerships (PPPs) provide an ideal way to promote and realize this collaboration.