The whole problem here is one of "derived demand" - put simply people do not purchase an airline ticket because they derive pleasure from the product (i.e. The flight) - the flight is simply an unavoidable hurdle to get from A to B.
As such any airline that undercuts on price will quickly pick up market share. In economic terms it is a very price elastic market. The inevitable product of all of this is a race to the bottom. As one poster said previously as soon as one carrier starts ramming in 10-across seating into their 777s everyone else is forced to follow suit in quick succession.
The problem with racing to the bottom is that when you get there, there is nowhere else to go! I blame the airlines, not the customers. Greed is the real driving force. A quality product for a fair price no longer happens in this day and age. Oil prices are rock bottom, planes are more fuel efficient, does the customer gain any benefit? No, unless you pay thousands to sit up front... I'd love to see a new business model based on quality come along and sweep all of these CEO's and cost cutters into the sewer where they belong. It will happen, once they reach the bottom of the bottom, someone will come along and do it.... and they will be some sort of visionary for actually giving a s#%t...