I think the issue is less the 2 hours or less point to point trips, but when these flights feed into long haul.
Finnair has a great long haul business class product to Asia, but flying to Helsinki on its short haul business class is a disappointment when you may simply want to snooze, at either end of the trip.
Same applies to all of the other European long haul carriers, LH/LX/OS, AF/KL and although I’m in London, a similar perception for BA.
Of course FFs with status get priority checkin/baggage/security at some airports and lounge access anyway in Y. So what’s left but the seat and catering? The catering is reasonable, but few would argue that it is worth it just for that (and be cheaper for airlines to provide better food in lounges than offer it on board).
The big issue is flexibility, but what is lost by having 4 rows of premium economy type seats (e.g. BA new WT+) in pairs either side of the aisle? Could add in free wifi (surely on board wifi has to come soon to legacy carriers to differentiate them from LCCs) for business class (paid in economy or free for elite FFs) and choice of hot meals.
Then the existing product could also be offered for sale to a few, to see if they still care for a meal and an empty middle seat?