All airlines offer tickets that individually cause financial loss (even without any status involved). I've seen fares as low as 30€ on AFKL or even stuff like 11€ on SK (taxes excluded). At the same time, airlines need these customers because there's not enough high-yield customers to fill the plane.

Yield management at airlines is primarily about segmentation of customers so you can squeeze a lot of money out of those willing to pay for it, without losing those who are more price sensitive as you need both for a flight (or a network) to be profitable overall. There are various ways of doing this (minimum stay requirements, open jaw / one-way permissibility, flexibility, and whatnot). One of the newer ones is by offering different fare packages - this is very efficient because you can easily distinguish someone who only cares about price vs someone who cares about comfort and getting full suite of services (choosing a seat they like, not having to squeeze their stuff into carry-on, etc etc).

Once status becomes involved, this goes out the window because suddenly those features are also available on the lowest possible fare and even the latter group of customers will book the cheap ticket. I suspect this is the problem AFKL is trying to deal with. As they join other airlines in offering more segmented fares (e.g. no carry on option), it becomes a problem when substantial group of customers, especially one that is supposed to be at the high-yield end of the spectrum, isn't motivated to pay for more expensive tickets.

Some airlines, like Lufthansa Group, solve this by simply not offering some status benefits on low fares (baggage, seat selection). AFKL is taking a different approach by offering benefits on all fares but preventing those who consistently only travel on cheap fares from earning status. This is not a bad concept per se. In its current form where only European basic fare earns 0 XP it allows people who spend a lot on longhaul J to still get benefits on their euro Y trips without having to buy a higher package.

Where I think AFKL's thinking goes wrong is that based on what Ben wrote, they seemingly believe this will make people purchase higher fares to earn XP. That's not the case. It will make people purchase higher fares to get those services. The main difference between the two scenarios is that the latter doesn't require loyalty to AFKL and customer may book with any airline.