I do not doubt that the airlines get a tiny profit from each award seat they "sell", but I suspect that a single ordinary C or F fare would counterbalance the sale of many many such redemption seats.

By diversifying the ways and means that miles can be gained, the airlines have moved away from the original purpose of such programs, which was to encourage brand loyalty amongst their most valuable customers.

I suspect that if they went back to the original system, their frequent flyers would be much happier as there would be a larger redemption inventory for them to choose from. The airlines would be left with a larger pool of unsold
premium seats, but they now have a tool available to them which was not around when these programs were invented: the internet. Occasional "fire sales" of these spare seats to the general public for cash would work well (no status or miles earned on these seats). I suspect that there is a big gap in the price and profit of the cheapest inflexible C and F fares, and the true cost/profit of a redemption seat; positioning the fire-sale seats into this gap would earn the airlines more than their current programs. Maybe.