1. Air carrier on-time performance on domestic hops is doing just fine.
2. Passengers book to cheaper fares. Just look at BE. This is not about any "race to the bottom," but rather about consumer demand.
3. Fewer and fewer passengers need to check bags.
The one missing piece here is that domestic legacy carriers are still gate-checking non-compliant bags without a fee. This leaves the suckers paying for their checked bag while the savvier people lug the bag to the gate and check it there. While this does not work for very large bags, it works just fine for the routine over-sized bag.
Carriers should, of course, check compliant bags without a fee when the OH's are full. But, non-compliant bags should be charged the bag fee + a gate penalty with no waivers for elites or class of service. Easily processed at the baggage office on arrival, rather than the gate.