The 'cost' to AC in a direct financial sense, is the cost of 'bumping' the occasional Y passenger on an oversold flight that might not have been oversold if Y seats hadn't been given away to elites. Of course, in this case, compensation is offered and usually AC has no trouble finding volunteers who will take the next flight for a $200 penalty. So, in this case, AC would collect the full Y fare from the last-minute fare paying passenger, less the penalty of the 'bumping' cost. This 'cost' of course would only happen when the flight is actually oversold. Rare, indeed, I would speculate.
Presumably, AC might lose some revenue from elites who would use their points to avoid paying a full fare. This is less 'real' than might appear at first sight. First, Y fares are so high that many people (myself included), NEVER pay them -- we just make alternative plans. Second, when points are accrued by non-price sensitive consumers (for example, employees travelling on corporate expense tickets), they wouldn't waste their points on company travel, preferring instead to use them for vacations.
So this much-appeciated benefit really costs AC little if anything. (Especially, since most 'points' are purchased, through third party credit card/affinity programs -- they actually generate very real revenue for AC.)

[This message has been edited by marbuck (edited 01-30-2002).]