I think the airlines have had a bit of a race to the bottom in a few ways:
* Fees. Charge baggage fees, everyone else does the same, nobody's any better off. Boarding is slower and passengers crankier. I was HAPPY to not have to tote my bag around every single layover until they started charging for bags, now I'm another unhappy customer lugging a bag everywhere, walking up and down the aisles looking for space, having my bag gate-checked (and inevitably lost -- gate checking is the least reliable way of actually getting your bag to its destination, it seems).
* Chasing "frequent flier" business travelers. I don't have the numbers to back this up, but most of them already seem loyal to their chosen airline to funnel their corporate dollars to, because they've got so many damn miles accrued. But airlines trip all over themselves to throw free shit at the 1% of frequent fliers that they piss off the 99% of occasional travelers. Yes, the frequent flier dollars are very important, but now we have a (very) long tail of less-frequent travelers who can be guaranteed that they will never, ever, ever be offered a free upgrade. You won't even get an emergency exit row (see: fees). I hate to sound entitled, but on my honeymoon, I was hoping that, for once, I might get a courtesy upgrade. Nope. I'd wager that if every airline set aside 2 slightly-better seats for a random upgrade, they'd get a lot of good word-of-mouth from the average joe like myself. But instead they waste every single bit of effort on the jaded business traveler whose opinion won't be swayed that much by small favors, because all of the airlines are throwing free stuff at them all the time anyway.
* Space, obviously. I continue to insist there's a market to pay 50% more for just a LITTLE bit more space. I don't mean economy plus; I'm not tall, I'm just an average-sized male. I just want my own goddamned armrest. I don't know why the airlines can't get this right. Business class 2x2 seating on a narrowbody would 'only' cost them 33% of seat capacity. 2x3 would even be acceptable, with an offset aisle. On a widebody, even just taking out ONE coach seat would make enough space to give passengers a meaningful upgrade. add a couple more inches of legroom to make it easier to get in and out, and bam, you have my loyalty for life. I'm happy to pay for a little comfort. I just won't pay 5x as much for business class. It's simply not in a normal human being's price bracket. I don't have to pay $100k to get a car that's a bit nicer than a Corolla. (see: frequent fliers spending business dollars).