Entry 4 - Gulf Air under some pressure…

It was the end of last year that news came out in the Gulf news that the Abu Dhabi’s government was withdrawing their stake from Gulf Air to concentrate their efforts in promoting Etihad Airways.

In reaction to this announcement, the Chief Executive of Gulf Air James Hogan commented,

"There will be no change to Gulf Air's core approach to business or to its on-going business strategy as a result of the withdrawal of Abu Dhabi as a shareholder in the airline"

One might wonder that how can such a news not affect their business strategy. In my opinion, this news will definitely affect the strategic assets that the firm owns which will lead them to make changes in their overall strategy in order to successfully adapt to the market.

One of the key assets that Gulf Air had was the fact that they were owned by three different governments. This gave them a strategic advantage over those airlines that were based in just one single location as Gulf Air was able to operate flights from three different locations in the GCC region. Moreover, they had the support of three different governments that gave them a strategic advantage over its competitors who are operating from the GCC. The company was able to utilize resources that were provided to them by the three governments. It might be the case that the Abu Dhabi government would have been providing them with resources either free-of-cost or at a low cost such as a certain portion of the land at the Abu Dhabi airport etc. On the other hand, it can be expected now that Gulf Air would have to pay a high amount for every service that will be provided to them.

Furthermore, this new situation can also lead to increased rivalry between Gulf Air and Etihad Airways. Etihad Airways will have an added advantage now as the Abu Dhabi government will concentrate their efforts towards developing this airline. This is why, in the long run both the firms can have a high level of rivalry between them. In the airline industry, exit barriers are high. This is because the specialized assets and the fixed costs are high. Moreover, governments don’t want such businesses to close down as it provides employment to a lot of people living there. When such barriers to exit are high, then companies that loose competitive battle do not give up. This can also lead to low profitability for other firms in that industry as well. In this particular case, Etihad Airways can cause a lot of difficulty for Gulf Air as it will now have full support from the Abu Dhabi government.

To sum up, Gulf Air would certainly have to make a lot of changes in their business strategy in order to proactively react to the upcoming changes in the industry. Only time will tell on how successfully they are able to do that.