Of course the programs are run to benefit the airlines. The folks who run them should be fired if they have any other priority. (Yes, airlines should help social causes, but frequent flyers aren't one no matter how strongly we feel we should be.)

That said, airlines are in a competitive business and they know it. Customers will choose Airline X over Y only if they perceive that X offers them additional benefits. So, the programs can only achieve their marketing objectives (keep big spenders loyal) if they offer something perceived as benefits by customers. This isn't their objective, but it follows inevitably from their objective.

The trick, from the airlines' point of view, is to figure out how to maximize perceived benefit at minimum cost. This includes things like early boarding (free), award seats that would have been empty (nearly free), upgrades when a first-class seat would have been empty otherwise (nearly free, though expanding first-class cabins to meet increased demand costs money), luggage tags (nearly free), special phone numbers (free; the call would eventually have to be taken anyhow) and so on. Some benefits cost money (extra-mileage awards for a seat the airline could have sold) but airlines are pretty good at keeping a lid on these.

The trick, from our point of view, is to look at the mix of "benefits" and pick those that benefit _us_ the most. I've gotten a midweek BOS-SFO round trip for 25000 miles which otherwise would have cost US$2000+, and a round trip BOS-LHR upgrade from cheap coach for 50000 miles which otherwise would have meant a $4000+ fare difference. Both of these work out to award "value" of over 8 cents per mile. People with different travel patterns and preferences might make other choices. (I've also given award tickets to my kids and step-kids. Their financial value may have been a lot less than these two examples, but their emotional value was incalculable. Our then-12-year-old was in heaven for months after a Virgin Upper Class trip to visit family in London!)

FlyerTalk forums are excellent ways to get information that helps maximize the benefits. Thanks to InsideFlyer for providing them, and to all the loyal participants for sharing their tips!