It all comes down to too many people making purchase decisions based on cost rather than value (hence the huge success of Walmart on this side of the pond). Further, a trip on an airplane is over quickly, so you're not continually reminded of the low price experience. That's unlike buying (for example) a cheap toaster - where you are reminded of how badly it works every time you make toast and once side comes out burned and the other side untoasted. So eventually you spend more money to get a better toaster.
Most people don't travel by air very often, so after six months or a year they forget that they had crappy experience on xyz, and xyz is $10 cheaper so next time they book xyz again.
So what happens is the majors can't compete on price and still offer all the perks. In the US, Alaska Air used to have a premium product, and advertised as much (going as far as make fun of the LCC with ads showing pay toilets on the competition's aircraft and some poor schmuck trying to get change so he can relieve himself). Unfortunately too many people were unwilling to pay a little extra to get a decent food and more legroom and their business dropped dramatically. So they morphed into a LCC (granted, one of the better LCC) and their business is thriving.