An interesting topic. I definitely think that the number of captives is smaller than the airlines would like us to believe and will probably go down even further with more employers simply going with the cheapest option for business travel. However, fliers working for such companies usually have some discretionary elbow room to select a bit pricier option and that is what most frequent fliers do to maintain loyalty to a given airline. If the (perceived) benefits decline I think that most people would either switch loyalties or just go with the cheapest price especially if they are taking some heat at work for going with more expensive options.

When it comes to leisure travelers, if the benefits go down to the point where the cost/benefit ratio doesn't make sense any more most of them will switch to other airlines or forgo loyalty altogether and use the cash to pay for the things no longer provided by the FF status.