ALL airline, and for that matter hotel, car rental, etc, frequent customer programs are designed to follow 3 very simple rules.

Rule 1: MAKE MORE MONEY.
Rule 2: See Rule 1.
Rule 3: See Rule 1.

They are in Business to Make Money, everything they do is for that purpose.

Of course, giving good customer service and free trips to good customers cost them money, the do it because, ultimately(or at they think so) it make them even more money.
If the customer wins also, thats a plus. If the customer loses in the deal, well as long as they remain a customer, then thats ok also.

Continental Airlines doesn't fly me all over the place, and give me upgrades to first class on discount fares, and tons of bonus ff miles because Gordon Bethune is a nice guy( I'm sure he is) or because they like. They do because they MAKE MONEY doing it. The fact that I get a good deal is part of the equation, but only in that if I'm happy I tend to fly them more, thus they MAKE MORE MONEY.