This is a myth. Cutting capacity does not reduce CASM, absent significant externalities. Cutting capacity can increase RASM, but since there's no reason to believe the demand curve has shifted, another airline with lower CASM can just pop right in and bring the ASMs right back to where they were before...only with lower RASM than before.
It's just that this doesn't happen overnight. This is why the strategy of cutting capacity has a short-term positive impact on RASM. The short-term high is nice, but the crash leaves you worse off than you were before.
Nor should they. As long as their costs remain low and their product quality remains high, they will continue to survive and maybe even thrive. Strictly in terms of the in-flight experience, nobody domestically has a better product in my experience. Factoring in the other stuff (miles programs, alliances, extent of network), VX offers much less, but that can be fixed over time.
