I worry more about incentives and how people respond to them. Interpersonal utility comparisons aren't really feasible. Do I teach normative economics? No, not really.

Anyway,in this case, LH presumably knows how to maximize its profits or whatever other objective it has. Clearly there is some issue in this case with "main" LH subsidizing PrivateJet, since PJ gets the revenue and (apart from fuel and staff), "main" LH is going to bear the costs of award tickets, lounge costs, etc. They also get the revenue now while the costs will be borne over the next couple of years.

So, I am guessing that they want to show a big positive quarter for PJ and are willing to absorb the costs in "main" LH later on. Relative to the overall costs in LH, the costs of even 5000 award tickets is nothing (since these are seats that would, presumably be empty, or nearly so, anyway... it's only the marginal cost of fuel and food that matters). But this could be a big boost for PJ.

I think the people who are worried about the negative externalities of this action (i.e. HONs who are concerned that we low-life-SENs will invade their precious FCT) are overreacting by a factor of 100. Even if there are 300 more HONs out of this (which seems like a huge overestimate, given the PJ
capacity and the number of people who might be willing to take useless flights), the impact on the lounges will be minimal.

To the extent that this action really does increase the number of HONs, one also has to guess that LH knows how many people are going to lose HON status in the next year, given the shift in flying patterns, etc., and they want to increase the number of HONs for some reason. Maybe the fixed costs of providing the F/HON lounges are just too high without a certain number of passengers to justify them. Dunno.

The biggest concern of folks here me seems to be a watering down of the "exclusivity" of HON status. And to that I say ... get over it.