Sure, advertising translates to bums on seats, and it does pay to advertise, however, does $1 in advertising return at least $1 in profit?
Lets face it, most of the Middle-Eastern carriers are not profitable. What we are seeing is the airline-equivalent of the nuclear arms race between the USSR and the USA in the late 1900's.
I am not saying that I have the answer or the solution, rather, I am questioning on whether "keeping up with the Jones'" is the key to profit and progress.
I agree with you that cutting alone is not the solution-- you cut and cut, and pretty soon there is nothing less. Gord Bethune covered that philosophy well in his book "From Worst to First."