It is very simple logic. The travel companies have a perishable product (seat, room) which - when filled - has almost no marginal cost if otherwise unsold. The public, on the other hand, places a high value on this item. Hence the virtuous circle of loyalty points, since if administered properly they do not cost the provider anything (low marginal cost of otherwise unsold product) but engender strong loyalty in the customer because he believes he is receiving something of value.

Now, let's assume the marginal cost of a 100,000 mile Club World award is £100 (the fuel cost of an extra passenger, food).

Let's also assume that a return flight to New York in J generates 12,000 Avios earned.

If BA gave you the cash equivalent of the loyalty scheme cost, you would be offered £8.50 per flight (since taking 12 flights gets you 100k Avios which gets you a free flight which costs BA £100 of marginal cost).

Now, what do you think attracts more customers?

"Fly 8 times to New York in Business and we'll give you £100"

"Fly 8 times to New York in Business and (subject to taxes) you can fly in Business free to San Francisco, Barbados, the Maldives etc, a flight that would normally cost £4,000"