Actually, it is. Assume each passenger drinks (the equivalent of) 4 bottles @ 0.3L per flight (long haul), that'll be 1.2 kg. For 350 passengers, that'll be (rounded) 400 kg. That water largely doesn't leave the airplane (it does leave the passenger, though ends up in the septic tank, which is only emptied when back on the ground). To haul around 400 kg of water, that'll cost roughly 1200 kg of fuel, which is roughly 1500 liters. With each liter kerosene at around USD 0.80, this costs around USD 1200. So, when you manage to hand out only half (or even 3/4) of the water amount by just dehydrating the passenger, you save quite a lot of money.

To give you an idea, I once saw a profit calculation for Easyjet, given the number of aircraft, the number of legs per day, the reported overall company profit, the average profit per leg came out at around USD 20 (not per passenger, though for the whole aircraft). Long haul flights will undoubtedly have a higher margin per leg, though unlikely being an order of magnitude higher.

So bottom line, by serving small portions water, at the expense of flight attendants running around more often, the company saves quite a lot of money.

Forget about reducing the number of flight attendants, that's already regulated to a minimum amount, based on passenger and door count, ie safety.

Airlines aren't that stupid.....