After I'll have prepared a decent opening repertoire I'll be so happy to travel to go to a chess tournament. You mention the cost, but I'm sure 99% of players go there for the experience...it's like a holiday that instead of playing beach volley you play chess.
Having said that I'm glad I live in Europe, where I believe distances are smaller than in America and tournaments are held in places you'd love to go to anyway. Beautiful cities, and I even know a tournament in a beautiful town in the Alps.
And the experience of OTB chess is what that counts.
Playing only on the internet is just sad, there are much more entertaining videogames out there.
I know this is a very subjective topic depending on where you live. Some countries, such as India and China, Chess seems to be booming, so I imagine the trend is in the opposite direction, but where I am from, Ontario, Canada, OTB tournaments seems to be on the endangered list.
I looked at Canadian Chess Federations website for upcoming tournaments for the year 2013 and it was quite depressing. Only a handful planned. Not only that, but the amount of chess-clubs that are active in major cities is anemic to say the least.
Bear in mind that as far as I know, Chess in Canada receives no govermnent support at all. We barely can scrape together the funds to field an olympiad team. A competing organization "Chess n' Math" has taken over from the official organization in the school system, further dividing the pool of organized chess.
Apart from these unique challenges though, most tournament organizers will tell you, the reason for the decline is the Internet. Its hard to compete with the ability to play with all the comforts at home against who you want at what time control etc. Then compare the committment required to play your typical weekend swiss. The big one is time. It will cost you the whole weekend (byes excluded) as at standard time controls, 3 and 4 hours games are not unusual. The second is cost. Most tournament players compete for the love of the game. Few do it for financial rewards. The average player competing in most weekend tournaments might make a few hundred dollars compared to a few thousand in costs associated with travel, food, accomodations etc, unless most of the tournaments you compete in are local.
I would be interested in what other players experience is. I know I paint a rather dismal picture, which is a shame, because I really do miss playing OTB, the competition, meeting new people etc. but the trend lines has been there for all to see for some time now.