Because most people search fares online and book the cheapest ticket.
Long before that point, I start looking at other factors like departure and arrival times and whether I like the airline.
For example, I just did a quick search, and for $25 more total round trip, I can get nonstop flights both ways. I didn't specify nonstop as a search filter (since there are few nonstop flights between these two cities), but now that I know it's only $25 more, I'd pick that.
Currently air travel is a completely homogeneous service. There is basically no difference from one company to the other, so it makes no sense not to go with the cheapest (even then, the flight schedule matters). That is not reason for a company to not differentiate itself.
(But I am very skeptical that a free drink would be enough of a difference.)
Where are you getting this? Tons of airlines provide varying levels of service/amenities. Only thing that is homogeneous is that you get from A to B.
I think you are onto something there, but you should have phrased it another way.
E.g. I think airlines were caught in a devils agreement with air travel search engines.
They gave them access to their flights, and the search engines had to find the simplest qualities to compare fares on. That usually meant price.
So you have tons of airlines with no clear value proposition differences in a search result, and it leads to the equilibrium being a devastating fight for lowest price.
It's gonna be interesting to see the growth of new airlines now that COVID is a thing.
Low prices seem to be a given, but customers are expecting service that accommodates their new fears related to air flight.
Even on the same airline, often there are partnerships. For example JAL/American and ANA/United I'm make sure to book the fight run by the Japanese partner not the American partner and the experience will be night and day. The Japanese plane will be clean the USA plane will be less clean. The Japanese staff will be friendly and service oriented. The USA staff will make me feel like I'm a burden on them and they'd rather be doing anything than their job. The food, even though it's airplane food, will be higher quality on the Japanese airline. Etc...
They aren't going to advertise "Flight has an 80% chance of having power outlets". And likewise, they don't want to deal with customers complaining that a power outlet flight did not, indeed have power outlets.
Southwest has a pretty loyal following since you can "refund" a ticket for Southwest credit good for a year.
Alaska and Delta don't charge for bike fees (they're just priced like ordinary luggage).
And aside from maybe 1K members, I don't know anyone who enjoys flying United.