Fly320s can better explain (or tell me I'm wrong), but I recall "cheap seats" on major airlines started because people were booking sardine can flights on the smaller airlines to save literally a few bucks. If the major airlines remove seats and charge more, infrequent flyers are not going to gladly pay 5% more - they are going to fight for seats on the no frills airlines, all over $20-$100.
I just fly the plane. I don't pretend to understand how the business is run, prices are set, or how many seats should be installed.
But... from my experience, the cheap seats fill up first. When I first started at my airline 19 years ago, our A320s were configured with 162 coach-class seats. No first or business class. All coach at the same pitch. We filled those seats. Later, we took out a full row of seats to increase pitch, decrease the required number of flight attendants (from 4 to 3), and to save weight so we can do non-stop transcons. We also filled those seats. I have no idea how much money we made or lost because of those 6 fewer seats, but we are still in business so something worked right. More recently, we added that row back in, but we also changed the type of seats, and added pitch to some rows. We still make money, I assume, but I'm not sure if the extra row of seats is what keeps us afloat. We fly 320s and 321s with four different seating configurations, which allows 150 to 200 seats. Only one configuration has first/business-class seats. The business routes usually get the newer seats/interior with more legroom and the vacation routes usually get the high-density seating.
What does it all mean? All the airlines spend a huge amount of time and money to optimize their routes, prices, and seating. Every metric is tracked and analyzed. Which means that the people/routes who are willing to pay more have been identified and they get the better seats/plane. People/routes who want a cheap ticket to vacationland get fewer perks. It isn't a perfect delineation, but it works well enough from what I understand of it.
If you want max perks at minimum pricing, fly during off-peak times/months. Also join your airline's frequent flyer club or use points from your CC to upgrade your seat. Mid January to last week was a very slow time for travel. I think we averaged around 70% seat capacity. September through Early November is also a slow time for leisure travel. Some destinations that are popular for business travelers and tourists never really slow down. Orlando is always busy. Major business city to major business city is always busy. You'll pay more for travel flexibility than for locking your options into one flight.
Summary: airlines are a business and they are trying to maximize profits by minimizing costs and increasing revenues. Ticket costs are very low overall, even if you personally paid a high price for your ticket. The airlines are making a few cents/per passenger/flight overall, so more seats means more revenue. More seats generally means less legroom.
Here is a good explaination:
https://www.mckinsey.com/industries/travel-transport-and-logistics/our-insights/a-better-approach-to-airline-costsThis shows the Revenue per Availble Seat Mile (RASM) for US airlines. The highest is 16.5 cents for each seat flown one mile. Not profit, just revenue.
https://www.statista.com/statistics/527810/us-airlines-domestic-revenue-per-asm/Subtract the Cost per Available Seat Mile (CASM) and you get profit (more or less). The CASM for the above example was 7.5 cents. So, roughly 9 cents of profit per seat per mile.
There is a ton of data out there to track how well/poorly each airline makes a profit. You can track by aircraft type, city pairs, and time of year.
Right now, the airlines are making big profits in part because they have learned to maximize revenue and in part because the economy is doing well right now. If the Corvid virus panic reaches the US, you'll see those revenues fall like an anvil. I expect all of the US airlines that fly to Asia to take a big financial hit this quarter.