To kill nationalism you'd have to somehow prevent the French Revolution, or a similar explosion of Enlightenment ideals in any of the great powers of Europe. That'd be a really heavy-handed POD, though. That's also ignoring the fairly complicated political realities of 19th-century Austria; many of the empire's nations had a nationalism that existed alongside a 'imperial patriotism.' Until they were all starving in the latter half of the First World War, most of the Austro-Hungarian population acknowledged the importance of their shared history and the geopolitical importance of a union of Central European peoples.
Franz Joseph is simultaneously the greatest and worst of the House of Habsburg-Lorraine. He came to the throne as a hardline reactionary that prevented the empire from disintegrating in the face of revolution and revolt, and steadily transitioned (as did the empire) into political liberalism, tolerance, and respect for democratic institutions. The man himself was so popular on an individual level that you had elderly Poles in Galicia keeping portraits of him in their house well into the 1920s. At the same time, the last thirty years of his reign (when reform or change of any kind needed to be undertaken) are characterized not by a lethargy so much as an unshakeable fatalism on his part. In his mind, Austria couldn't change, adapt and flourish so much as it could only hope to hold out against the changing times as long as possible. This was, at least in part, the product of the unrelentingly tragic personal life of Franz Joseph: The anarchy of his youth, his personal failure in the Battle of Solferino and how it permanently damaged his faith in his own army, the assassination of his wife, and the suicide of his only son and heir. The stoic personality this instilled in the Kaiser gave him a dignity and popularity across Europe, but came with a fundamental fear of taking risks (seeing as they always seemed to end in disaster).
In contrast to the benevolent and conservative-yet-tolerant views of his uncle, Franz Ferdinand was a reactionary chock full of huge ideas on overhauling Austria-Hungary that were (mostly) pretty good, and was on a personal level very difficult to like, especially if you were Hungarian. Crown Prince Rudolph, had he come to the throne early, would also have been an interesting ruler during the golden age of Austria leading up to WW1. "Interesting" may not be the same as "good," though. He was notably liberal in his views, and where Franz Joseph saw the throne as a duty set to him by god, Rudolph openly questioned the institution of monarchy - he might have given in a bit too much to nationalists, but given that he died at the age of 30, it's hard to say.
Reforming Austria would inevitably involve decentralizing it somewhat, but the ultimate challenge would be to decentralize it in a way that keeps it from flying apart while still appeasing nationalist and federalist elements of the empire.
