When Apple started selling unlocked iPhones in the US, the base model was $649 (iPhone 5) and it stayed at that price up to the iPhone 7.
The iPhone 8 went slightly up to $699.
In other words, prices never dropped nominally. The Air isn't going to drop a single dollar unless sales are very horrible.
Again, would Apple leave a $400 gap in their product stack?
I think the Air can indeed go down in price if Apple wants it to replace the vanilla iPhone. They are getting away with charging a higher price now because the tech is so new.
Those prices you quote are a result of natural inflation over a long period of time.
The X had brand new tech and Apple never dropped a dollar. At $899, you're suggesting not only zero inflation, but deflation.
What Apple did was they launched the XR the following year. It was a fatter version of the X with a single camera and cheaper materials intended to replace the vanilla iPhone 8. What's a fatter, aluminum version of Air? It's the iPhone 17.