Abu Dhabi and Dubai, like many sprawling and evolving cities around the world, suffer from urban and environmental problems, such as congestion, automobile dependency, lack of connectivity and fragmentation, air pollution, and excessive carbon emissions. According to recent statistics issued by Dubai Statistics Center (DSC), intercity travel between emirates has been gaining popularity in the past years. In 2021, it is estimated that 8000 trips are recorded daily on the Abu Dhabi – Dubai Highway.
The daily trip, 100 kilometers each way, between the two cities is time and health consuming for UAE residents who study/work outside their home cities. Furthermore, this unfortunately contributes to increased road accidents, especially among young drivers. According to government statistics, traffic accidents caused 725 deaths and more than 6,000 injuries in 2015. More sustainable modes of transportation between the two cities are increasingly needed.
You were recently hired by the UAE Department of Transportation to explore alternative transit (transportation) options. Your main task is to determine what type of transit options to choose from among three potential: (i) Heavy (Rapid) Rail, (ii) Light Rail, and (iii) Dedicated Bus System.
Please note the following:
- Details of the available transit options and their associated costs are shown in the Appendix.
- You can assume that 15% of the commuters (currently using cars) between the two Emirates will adopt the alternative mode of transits that you are studying.
- The life (service period) of all transit options is 40 years with a 10% salvage value.
- Population growth, and hence the number of passengers, is expected to grow at 3% per year.
- For the analysis, you can assume an annual discount (interest) rate of 4%.
- You might need to make additional assumptions to conduct your analysis. Please clarify any assumptions that you make and provide as many details as
possible on your approach and calculations.
Phase 1: analysis with fixed parameters
Perform an economic analysis to compare the three modes of transit above and determine the optimal one from a pure financial perspective. Using more than one economic analysis technique (e.g., NPV, IRR, BC, etc.) is recommended. The use of cash flow diagrams to visualize cash flows is also recommended. Discuss your results and reflect on any interesting facts that you observe.
Phase 2: uncertainty analysis
In reality, factors such as “interest rate” are uncertain and might have different values over time. Conduct a sensitivity analysis on the interest rate and reflect on the results. What type of transit options are becoming more attractive when the interest rate is higher? How about when it is lower? Limit your analysis to the 1-10% range.
Phase 3: beyond economic analysis
What are some factors that were not accounted for in the economic analysis that might influence the choice of the transit options to invest in? Is money the only criterion that should be used to base the strategies of cities and countries? Would the above considerations make you change the “optimal” transit mode that you identified in the previous sections? Provide your own thoughts and opinions on the topic keeping in mind the best interest of the users and citizens of the two cities in general. Also, reflect on whether such factors are easy to quantify and the type of data that would be required to do so. Finally, make sure to explain why commuters might choose to switch from their cars to mass transit and what can be done to incentivize it.
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