Is it true that at one point, Sega considered ending the Sonic series? With Sonic Frontiers being the last game? (Which would explain why Amy, Tails and Knuckles seem to decide bigger plans without Sonic after the end of the game.)It's still more comfortable than holding the wiimote horizontally.
Yes, but from what I read in Famitsu, that was in the mid-2010s (following a string of poorly received game releases, including Boom series and Lost World), long long ago before Frontiers, even before Mania & Forces.
The board considered canceling the entire Sonic the Hedgehog franchise but Iizuka and Sonic Team managed to convince them to give a chance one last time with Sonic Mania, Sonic Forces, and the movie.
Thankfully the movie was a success while both Mania and Forces were also commercial successes too (Sonic Forces might be deemed a critical and creative failure but in term of sales ... somehow it sold well, especially on Switch which was still a new console at that time. Switch version (physical) even defeated both the physical sales of the PlayStation 4 and Xbox One versions combined.).

How would you improve combat in S&tBK?
I'm not sure, may be thinkering with the sword mechanics more. Since the movement is automated on rails, we can often just jump over enemies instead of engaging with the sword mechanics. But then again if the enemies are unskippable and have to be defeated, it will break the fast-moving platforming flow.