The fundamental problem is that many passengers these days demand ever-lower fares, measured in pennies rather than pounds, and are prepared to accept an abysmal level of customer service to get them. As a result, legacy airlines are forced to lower their fares to match those of the locos (which they do - BA and other major airlines are often cheaper than the low-cost airlines on routes and dates that people actually want to travel) even though their cost base is significantly higher.
This is the new reality, and it presents a challenge that all legacy airlines must face.
Post of the week - nail hit firmly on head