There are a variety of costs associated with award seats and upgrades. exAC is correct in noting that until recently these were never really accounted for, but I expect now these are becoming very real costs. Remember the analysis ACA made of the cost to the airline of upgrades, and what these have meant in:

i. loss of the J seat for sale close to flight time
ii. loss of revenue by permitting upgrades from lower fares

We may disagree with some of these scenarios, but a while ago I posted a fairly elaborate analysis of these costs given AC's then musings about spinning Aeroplan into a separate entity. Unfortunately I haven't a clue where in the archives that discussion is.