As somebody who flies a lot for work, it raises the bar enough to stop a really stupid terrorist. Those business travellers that you see flying week in, week out know more about airport security flaws than the TSA.
On the other hand airplane security does raise the bar. The change to have reinforced cockpit doors was the only thing that changed after 9/11 that makes flying safer.
In response to prior experience with hijackers, pre-9/11 "security" primarily involved disarming the passengers and training passengers and crew alike that they should act like sheep, exercise no judgment of their own and obey any commands given by hijackers. 9/11 should have sufficiently demonstrated the fundamental flaw with that approach - that it is brittle. It was perhaps worth trying back then, but it didn't work and we should try something else instead.
There are many busses in NYC where the bus driver is in a bulletproof compartment; he doesn't have to come out until/unless it's safe. One cannot reasonably expect to hijack such a bus. Planes can be similarly safe against hijacking so long as airlines take cockpit security seriously. Make sure the door is strong and secure, make sure the pilots can see OUT of it well when they need to - this might involve a bulletproof glass window - and make sure there are clear protocols such that nothing going on in the main cabin can force the pilots to come out. Let the pilots be armed as well if they so desire. Beyond that, we might want to encourage passengers NOT to be sheep, but it would probably suffice to merely let them exercise common sense. (The would-be shoe bomber and underwear bomber were ignominiously foiled by fellow passengers.) "Taking control" of a huge room full of hundreds of people is not an inherently easy thing to do and it's not clear it could ever happen again in a similar situation now that the risk is known. Given that ordinary technology and protocols and social institutions make controlling the cabin unlikely and controlling the cockpit nearly impossible even WITH the use of weapons, why bother searching for them?
There is a weird feedback loop in operation: we are unusually afraid of plane hijackings, so plane hijackings are an unusually good way to make people afraid. But hijacking is already nearly impossible, so we just need to stop being afraid of it. The solution to terrorism is to stop being terrorized. Modern security leaves people defenseless as it sends the message that they SHOULD be afraid; getting rid of security would send the message that the threat isn't so bad that we need to be paranoid about it. Paradoxically, this would actually make planes a less attractive target for terrorists.
There is no baby in there; it's ALL bathwater. It's dirty and gross and needs to be tossed out.
All the arguments about 'what about blowing up trains/buses/whatever' also miss vital points - namely, that the passengers on a plane cannot escape, and small damage to a plane can doom it. This is not true of trains or buses. Combine this with the point that the public, rightly or wrongly, are more significantly affected by a plane crash, and it becomes clearer why planes are better targets for terrorism. Similarly, the demographic that uses planes are largely middle-class. Those who use public transport have a much larger proportion of working-class people on them, who have less political power, and the media also cares less about them.
You also still have to face the issue of running your own terminals, because any international airport has its sterile zone, which is connected to every other international airport in the world. Until you get them all accepting your citizenry carrying weaponry, your local international airport is going to keep its sterile zones. And running your own terminals is going to cost you more than $5 extra/ticket...
Because I trust that on average, by and large, my fellow passengers are competent and well-meaning people.
'On average' is the problem here. The general public includes all sorts of idiots, terrorist or otherwise. Anyone who's had a job facing the general public will be aware that there are plenty of people who fuck with you just because they can. Particularly in an enclosed environment where people sometimes get heavily inebriated.
And regarding the skydiving, light aircraft have only rarely been used for terrorism. The same is very much not true of heavy aircraft, which have a long track record of terrorism.
The specific threat that modern "airport security" is designed to stop is essentially nonexistent.
Ultimately, this is a chicken-and-egg problem. Hijacking has been made extremely difficult by the current measures, but even before 9/11, hijacking was much more difficult in the 90s than in the 70s due to increasing the bar for security. The threat is there, but higher security means you have to be better-resourced in order to defeat it.
Perhaps put another way: if there is actually no threat, then why do you say you'd feel safer if your fellow passengers were armed? Shouldn't you be saying it'd make no difference?