I didn't say anything like that. I said that you could be sacrificing the loyalty of those people, yes, because please correct me if I'm wrong but people who are buying last minute tickets are often buying full fare or at least full fare is less of a premium to whatever else is the cheapest that they can buy, and then in that case they get higher priority for free upgrade than the others.

I don't see how it effects my premise at all. My premise is:

1: Top tier elite frequent flyers are already spending a lot on airfare (and it would be even more for the travelers you describe who are often flying last minute during typical business travel times). They are also spending some premium to stay loyal to a particular airline. They have demonstrated with their dollars that they are willing to pay a premium for better service.

2: Top tier elites already get nearly all the benefits of 1st class travel, plus they have a good-to-great chance of getting the upgrade to 1st itself

3: Yet they are given the same price for a 1st class ticket as anyone else, who doesnt already get all those benefits and have a chance of getting upgraded for free.

Its an inefficient pricing trap. People know that with their $500 economy seat they have an X% chance of being upgraded, and they would be willing to pay $1000 to get the seat guaranteed, but X is too high to justify them paying $1500 to $2000 that first class is to everyone else.