€1000-2000 is not a “normal” fare for a short-haul flight within Europe, even with a legacy full-service airlines. Most of them will have cheap fares that are slightly above the price of low-cost airlines (if you book a non-flexible return ticket in advance). Even full fares for a flexible ticket booked at the last minute or business class tickets should be in the hundreds, and not the thousands of euros.
You can however find fares of €2000 and up but that's best regarded as a glitch of the booking system resulting from very complicated way airline fares are constructed.
Very often this happens when looking for flights from an airline that does not operate them in the area at all and simply resells tickets from partners. In these cases, there are almost always better fares available. The funny thing is that one website will show you the crazy fare but a search engine will reveal more logical routings or perhaps even the very same flights for a lower price.
Finally, note that not all passengers on the plane are paying the point-to-point fare. Some of the short-haul flights you might have looked at are really feeder flights to bring long-haul passengers to a hub. When combined with an intercontinental flight, the short-haul flight can be essentially free and the whole ticket cheaper than a direct long-haul flight to your destination from your airport of departure. Again a counter-intuitive results of complex fare rules.
So nobody needs a reason to pay that much money. Mostly people just pay a small premium for all the reasons detailed in other answers (convenience of non-stop flights and better airports, hopes of a better service in case of irregular operations, points for loyalty programs), especially if they are not paying for the tickets themselves. And sometimes, the full-service airline can be the only way to reach your destination or even be cheaper than a low-cost airline.