This will not change until the top management of the group will change. The current thinking, right or wrong, is that there is no need to substantially improve shorthaul J offering. As long as it's not substantially worse than competition, and as long as it is demonstrably better than Y (the debatable proposition that "free" J catering is ipso facto better than what you could pay for by savings from the price difference in Y aside), this thinking will not change.

For that matter, not having any particular interest in LH as investor or as regular premium flyer, I do agree with them that there is 0 reason to consider own Y as competition.

You might go for Y and spend the savings either on BoB or more usefully on-ground, but 99.99% of short-haul J pax will simply not take this option into consideration, because they either connect into long-haul J/F (and as such don't have the option of taking a connector in Y) or they will be buying J short-haul anyway (the reason being, whether because that's what their company travel policy gives them, because they are wealthy and don't care to travel in Y, or because they want the miles)