It’s a highly competitive, cost-optimized market. The entry costs actually aren’t that high, because airplanes are usually leased. Small airlines are always entering and existing the market.

The problem is not airlines ignoring the norms of competition. It’s that people just want the cheapest service possible. Airlines sell seats with more leg room for a modest fee (I paid $30-50 for the flights I took today). It’s always easy to get these upgrades, which means not very many people are willing to pay extra.

It’s like PCs. Why does Lenovo/HP sell so many PCs with garbage screens? People don’t care. They just want these machines to be cheap.

As to lack of perceived improvements, it’s because physics hates aerospace engineers. In half a century, jet airplanes have gotten maybe 50% more efficient (during a time when fuel costs have exploded). Billions and billions of dollars have been spent to achieve those improvements.