Wino,
I agree with your post, but I feel it's somewhat incomplete. The industry is over capacity, no doubt. The near certain war, this week, next week, next month....will possibly (but hopefully not)make all this discussion moot.
Now is the time to focus on customer loyalty and service (within the obvious constraints of today). It doesn't cost any more for someone to smile or be pleasant. On a recent CO flight (and bear in mind I truly like CO) I was upgraded to First Class- on the entire flight 1.25 hours, I was offered one (ONE!) drink, and pretty much ignored. On another, a Northwest Flight Attendant actually sat down and read a magazine in a empty row for about 10-15 minutes. Don't worry, I'll skip a refill on the coffee! Conversely, on a recent roundtrip on Southwest, on both legs, one fairly crowded, the other fairly empty- the cabin crew couldn't have been nicer or more responsive. Air travel is stressful enough without pleasant faces and adequate service.
Why are Southwest and others making money (or losing very little) in today's market? Possibly because they are setting the new standard in a lot of markets.