Kamalaasaa

The fairest thing to do re: downgrades would seem to me to be

1. You don't downgrade someone who originally booked and paid for the seat outright (with either cash or miles).That is, someone who booked and paid for a seat in F has top priority, regardless of the amount of cash or miles paid.

2. If everyone in F is on a paid (and non-upgrade) ticket, then the lowest priority goes to the person who bought a ticket last. Simply put, it's not fair for the airline to boot someone who bought a ticket months ago in favor of someone who bought a ticket the airline didn't actually have available to sell.

The only exception might be protection for people who bought last-minute tickets, as their travel is more likely to be critical. But defining last-minute would probably be a hornet's nest.

3. People with booked-in-class tickets have priority over people with paid upgrades, who have priority over people with status upgrades.

Practically, that means airlines should not sell or give away upgrades until they are sure the seats are available (which means all paid pax are onboard or else the time to be at the gate has come and gone).

4. Check-in time is irrelevant for determining downgrades (except you must be checked in by whatever time is specified in the CoC). If the airline says you have until T-?? to check in, then you do, period. You can't get downgraded or booted because you took them at their word.

5. Non-revs and must-flies can't displace paying pax (either purchased-in-class or paid upgrade). In all fairness, they probably should not displace pax who have already received a complimentary upgrade either. Goes back to you don't promise (and certainly you don't sell) something and then take it back.

EDIT: I guess the situation could arise where a higher priority passenger (under my scheme) arrives st the gate before the cutoff time but after the cabin has boarded full. If that is the case, of course, the airline hasn't been paying attention or monitoring the situation. But I would argue then that you certainly don't downgrade a paid-in-class boarded pax or a paid-to-upgrade boarded pax. They could downgrade a complimentary upgrade pax (in this case using status as the selection criterion seems OK) but with decent compensation.

EDIT2: As for compensation, a downgraded paid or paid-upgrade pax should get the difference in the fares AT THE TIME OF BOOKING, plus interest (because use of that money was lost - it might not be much, but it's the principle - no pun intended!). Everyone downgraded (paid with cash or miles) also gets mileage compensation. I suppose this could be determined based on amount paid for ticket/upgrade and/or status.