They are no longer all that cheap and that was their unique selling point.
I think you hit the nail on the head in your post SeatA1Please.
However, I think what they do have is the perception of cheapness - and that is what counts most.
Ever see Tesco own brand cheapo beans and the like? All the value lines look God awful but have you ever wondered why they don't lift a finger to spruce up the jailbird packaging?
It's so the punter doesn't feel too attracted to it. If you're short of cash you'll buy value. But if you're in two minds you might opt for the standard line, or even the premium branded line. The packaging on the low cost food is there to protect the regular products and divert those who could stretch to something more expensive away from something in reality only slightly inferior in quality but far less in price.
Likewise but in a sort of mirror image, by banging the lo-co drum, being gaudy and brash - Easy and Ryan come to mind for me here at least - the budget airlines' packaging diverts the cost-conscious consumer to their product. We may not buy, and especially so when we realise we can have the premium airline for the same or just a touch more, but we are fingering (ahem) the product, and that's half the battle won.