Like you said, it's becoming more a form of public transit than it is a vehicle for going on vacation or pleasure. My guess is that 90% of passengers are using planes out of necessity rather than electively choosing to use the airline industry.

There is a reason that airlines don't give a crap about customer satisfaction to anyone other than first class passengers. That's because they know they offer a service that people absolutely need and which no one else offers. There's only one 6:00 am flight from SLC to SFO that enables you to get to San Francisco for work without having to spend the night. There's only one non-stop flight on Monday from SLC to DC that enables you to spend the work-week in DC. There aren't enough airlines to offer viable alternatives and companies know that the customers have no other options for the majority of their flights.

Honestly, I wouldn't be surprised if you saw a "standing room only" or "bleacher-seating" section of an airplane that enables the airlines to cram a few more people into the back of the plane.

I guess my ultimate point is that free-market principles sometimes break when you have very few companies that offer a needed service. It's not a life-saving drug or anything, but it is a necessary service that airlines have a monopoly on.