Daedelus
Firstly, I am sorry to hear of your experience, it must have been very stressful and frustrating for you all.
With regard to why airlines do not sell discounted business class seats, well they do in a way. If you scout the internet, you will find consolidators who buy blocks of J class seats and sell them at lower prices.
But most airlines protect their premium passengers. Put yourself in the position of someone who has paid (whose company has paid) for a J class ticket on a long haul flight. How would you feel if the airline upgraded someone next to you and you found out about it? I know that I would be annoyed, since I would consider it to be unfair.
Sometimes it does happen, I got bumped up from W (premium economy) to J (Club) on a BA day flight from Boston, where I didn't consider the hefty premium for a flat bed worthwhile (even though my client was paying.) I was sitting next to a very nice American guy, who had paid J fare out of his own pocket to go on holiday. Out of consideration for his feelings, I did not let him know that my seat cost sveral times less than his. The flight was overbooked in M and BA shoved some people up a class, so some lucky person probably got F out of the situation.
The reality is that many large corporates have bulk deals with airlines, so they will be paying relatively low prices for J class seats, but the principle is the same, their purchasing people don't expect to pay more than tourists or even the same.
Airlines manage the yields of flights carefully, from BA to Ryanair and they have sophisticated software that balances load with profit.
Now as to your comment about LG on the short connection to Lux, I tend to understand your feelings. In my opinion, Ryanair have changed the short haul market beyond recognition and their facility to change all bookings (for a fee) is very clever, since it allows the passenger to retain the original cost of the fare (and not feel ripped off), whilst paying some more money to the airline for the change. I think that is called a win-win outcome. The traditional airlines have not woken up to this opportunity as yet and Ryanair (and easyJet) have won differentiation.
It sounds to me that LG missed an opportunity to win a friend by having rules in place that were probably devised before Ryanair existed. I imagine that the travel agent issued you with two tickets, one shorthaul return and one long haul return, so LG were not responsible for your late arrival and their staff in FRA (LH staff?) followed the rules. I have sympathy for them, since they probably had no discretion.
However, they won't get their share of your wallet in the future, so what did they really achieve? Having used LG a few times this year, I find their service unusual, there is little difference between C and Y to justify the price, apart from blocking off of the B and E seats on the 737.
Many people in the industry either don't understand the commercial aspects or have a questionable attitude, such as apaddyintheuk, who likes to consistently slag off the people who pay his/her wages.
At the moment, its boom time for air travel. However, the industry is highly cyclical and dependent on the global economy. The next downturn will provide Darwinian enlightenment for a number of airlines. There is also the spectre of EU legislators, who don't like the ecological aspects of air travel .... watch this space.
Some airlines will learn that you cannot manage yield without managing revenue and managing revenue means attracting a sufficient number of pax in the first place.
As a footnote, your comments remind me of Juran\'s definition of quality.
There is quality (things are as they should be) and there is grade of quality (how many features or functions.)
You experiences show that providing a cheap, poor experience (low quality) is not the same as providing a cheap, good experience (low grade of quality.)
Ryanair do the latter well, there are few features, but the aircraft are clean and the service generally works. That\'s all most short haul travellers really want and the pax number trends show it.