Points and miles also serve as currency (and revenue) for airline transactions, both from passenger and airline perspective, so it is not just J revenue that an airline gets for an upgraded passenger. I am sure when I sat in NH F few months ago upgraded with UA PlusPoints that NH was not carrying me in F for free and got zero in return - or maybe they like UA customers so much that they just put us in F and get paid nothing...

Reality is airlines trade seats surplus to demand for less than their asking price to curtail losses and/or maximize profits - whether given out for 'free' as CPU or op-up to a loyal customer, sold as a cash upgrade on day of travel or before, an auction, miles (with copay) upgrade, miles alone, PlusPoints, or any other instrument, the airline is getting something in return for the upgrade, more than what they would get if flying those seats empty.