I believe it was American that spearheaded the movement towards nonrefundability on their cheapest fares, when they were battling People Express. But I was too young then, so anyone please correct me if I'm wrong.

People Express's low fares were refundable -- I think you didn't have to pay until you checked in, or maybe even till you got on the plane -- so there was no incentive for a customer to show for a flight they'd reserved, i.e. no-show rates were very high and very unpredictable. By restricting the lowest fares to nonrefundable, American was able to implement some pretty sophisticated (for the time) yield management techniques, selling enough high-fare seats to keep yields up while being able to advertise low leisure rates. To clarify, since they were better able to predict how many low-fare passengers were actually going to show up for a flight, they could reduce oversold situations and better manage how many seats they'd sell at each fare level. I guess, if you're a half-full glass kind of guy, you could say that nonrefundable fares helped bring low fares to leisure travellers.

Since I am too young to remember this, and am only paraphrasing what I've read of the time, I'd love to hear other people's perspectives and/or corrections!