Actually I see the market as being even more polarized than that.
I think there is now simply a short-haul market and a long-haul market, with the diviser being somewhere in the 3-5 hour sector lenght region.
Short-haul passengers are almost totally cost driven. In todays world even those doing short flights for business won't pay a premium for a big chair and a glass of plonk. Frequency might be a factor, but most major city-pairs are well enough served that it is already there.
On long-haul, the cramped legs, hunger and need for entertainment and liquid refreshment make a work-out of the expense account justifiable.
I see a world developing where the "Majors" either give away short sectors completely or service them through wholy owned subsiduries (I think BA will rue selling GO fore long) and stick to intensive service on long flights, leaving the "Bus routes" to the likes of South-west and Ryan who, lets face it, can get the punters just as effectively from A to B for much less cost.
As someone once wisely said, once they develop teleportation, airline flying is dead. People just want to get there. If it's a long flight, they'll pay for the "Extras" to make a necessary evil standable. If the flights short enough to endure without the frills, fewer and fewer people will part with the readies to supply them.