How would you respond to basically being friend zoned?

I would respond thus:

Thank you for taking the time to send me your very kind and thoughtful message. I appreciate your honesty and openness. (If you wish to remain friends with her then you could continue like this...) I hope we can remain friends and continue seeing each other.

If you are asking for some magic words that will make her reconsider "friend zoning" you, then I am afraid there are none, and I must say that many women see the idea of a "friend zone" as a misogynistic concept, and would say that the friend zone is typically discussed in terms of a woman having an obligation to enter into a romantic relationship with any "nice guy" friend who is attracted to her. If the woman is not interested in a romantic relationship, she is painted as a bad person. if you feel like this, I would urge you to do your best to conceal it! If you feel it very strongly, and you absolutely cannot conceal it, I would suggest that you give up dating girls or women until you are a bit older.

She said- "I don't think it would be fair to you to keep going out"
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Well that's clear enough, she's dumping you in the nicest way possible!

I think that the best reply would be a short thanks you note for informing you of her thinking on the future or lack of same of a relationship and that unfortunately your feelings are such that it would not be possible or wise to try to maintain a close friendship only relationship with her.

You wish her the best and then go on looking for someone else.

What you do not do is hang in there hoping you might be able to change her mind and getting more and more annoy as she enter into other relationships with guys who are not doing half of what you are doing for her as a "friend".