Here is the problem - airlines and just about any business offer a product to an existing market with existing conditions, few businesses make a new market.
If the market was there, you'd see airlines playing off the weeknesses of what is going on with their competitors by diferentiating their product. Basically an airline for example would enlarge coach seating noticably and market their airline product as "We have way bigger seats", an airline would start serving great free meals and market their product as "We serve great free food", an airline would start not charging for bags or give you 100 lb allowances and market their product as "Bring as many bags as you want, we don't care, we won't treat you like the other guys"
Why don't you see an airline doing this yet? Because the market isn't there to pay for the offset in an increased ticket price to allow them to provide those things. They can't be done without a cost involved, this isn't magic and its not about being a 'good' business, it's simple mathmatics so don't even go there. To offer more you're going to have to charge more, and obviously the market isn't there, because while I'm pretty smart, but I'm not a genius that has this figured out and no airline has thought of this.
Problem is the market - the american flying public still hasn't reached the squeeling point where enough is enough yet. They (or you all) are still willing to put up with less and less as long as the you get a low priced ticket. You'll still bitch about it without a doubt, but you won't pay more to get more. Not yet anyways.
Fin, that is why we need more government regulation. With that I am sure we can get better service while not paying what it costs for that better service. The gov can make the numbers work... or at least look like they work, right?