There are several reasons; the main one, though, is fare discipline. If passengers learned that airlines would always lower the price until the seats were sold, they’d be much less likely to buy higher fares; they’d just wait. This would be disastrous for the airlines, because a huge part of their price discrimination strategy is using advance purchase rules to get business travelers to pay more than leisure travelers.

A second reason to provide upgrades to frequent travelers is to try to provide an additional incentive to book UA even when all else is equal — or even when UA is at a disadvantage in terms of convenience, fare, or whatnot.