Final answer:
Spirit Airlines is an ultra-low-cost carrier that unbundles services to offer low fares, appealing to cost-focused travelers. Price competition can lead to market exits for new entrants, following which incumbents might increase fares. The deregulated airline industry has become more efficient and competitive, though concerns over reduced competition due to mergers persist.
Step-by-step explanation:
The question is related to strategies employed by airlines, particularly ultra-low-cost carriers like Spirit Airlines, which unbundle extra services to keep fares low. This approach targets customers prioritizing cost savings over comfort and amenities. In the broader industry context, deregulation has led to increased competition, more efficient operations like the hub-and-spoke system, and deeper market penetration with more accessible fares. The introduction of new, smaller airlines into a market can lead to aggressive price competition by incumbent carriers, which may temporarily drop prices to unsustainable levels, effectively pushing out the new entrants. Post-competition, incumbents may increase fares again.
Despite making air travel more affordable, this has raised concerns regarding the overall competitiveness of the airline industry. The advent of mergers and concerns over monopolistic behaviors has highlighted the delicate balance between competition and market dominance. Ultimately, the practice of providing lower fares through unbundling services contributes to a diverse marketplace, catering to different consumer preferences.