This time I disagree; not all supply is created equal and while any airline can fill all their seats at $1 fares, chances are they won't quite run into an abundance of high fare (say K+) customers.

What the industry's doing with the pull downs is to chopping off the lower end of the demand curve by raising prices (and thus loosing the cheap customers.)

Loyalty will still play as large a role as it previously has, maybe a greater one, as there's not going to be an abundance of full-fare fliers anytime soon. And that's what an airline will need to compete for such customers assuming there's not a pricing or scheduling advantage.