|AA tried that, remember MRTC (More room throughout coach)? Generally more of a focus on service and comfort in exchange for slightly higher prices. Result, they lost business.
And more generally -- "discount" airlines seem to be the ones not declaring bankruptcy every other year.
I guess I'm not clear on what kind of "service" you are willing to pay extra for and/or bemoaning the loss of. I don't really need an airline to be doing much more than getting me from point A to point B in the advertised timeframe. I'm not usually willing to pay the differential between Jetblue/Southwest and coach fares on carriers like United/US Airways now
, and I'd be even less likely to do so if they raised their prices further.
If I traveled a lot, I might pay more for a significantly better chance of leaving/arriving on time. I might pay more for extra legroom/comfort on long flights, but not in the range of what airlines try to charge for business/first class seating. 10% more for a couple inches of legroom might be worth it. 100% more is not -- and I'm someone who could really use it!