I had pretty much the same question/complaint a little while back, when I started playing. Namely, I protested that it makes no sense to have a route as London Heathrow to London Gatwick reach prices almost as high as, say, London to New York.
What was explained to me (probably Air Elbonia, not sure) was that, when competition sets in, this apparent oddity gets corrected. And it sure does. When the world is young going longhaul does not make much sense, since you can charge pretty much the same for shorter routes, of which a plane can serve plenty per day. As competion starts to heat up, fares on short routes drop rapidly. Longhaul not so fast.
By the end of the round, and as far as pricing goes, this simulation gets much closer to real life.