It's not a question of losing el-cheapos, it's a question of maximizing revenue from them. The el-cheapos will always book based on one factor, and one alone: price. Charging them an upsell to F is just one way to get a bit more $$$ from them (like DirecTV, and probably BOB food, which I suspect is coming soon to the Y cabin). I'm surprised they haven't found a way yet to charge for activation of in-seat power.

The problem (to me), is that CO appears to have chosen to generate revenue from the mass of its traveling populace, at the expense of its loyal elite flyers. It's nice that they can glean some additional revenue from their cheap-ticket flyers. However, those flyers are necessarily fickle, and preferring them over flyers who have demonstrated ongoing loyalty is short-sighted, in my view. US selling upgrades out from underneath its elites didn't go over so well with its elites. For that (and numerous other reasons), US experienced a mass-exodus of its elites.

If faced with another SARS or international incident impacting travelers (with a concomitant drop-off in low-fare, leisure flyers), CO will be in an exceedingly poor position to weather the storm if it has, in the interim, managed to drive away a significant population of its elites.