First a disclaimer, I detest seeing the employees ride up front over other paying pax. Especially elite pax who are the backbone of the airline. I left DL b/c too many seats were occupied by employees and b/c of the non u/g of LU fares. The last straw was a trip where I couldn't upgrade and six of 12 seats were occupied by employees. So off to CO I went. Now as far as costing the airline revenue:

Now that I said that, I do believe that non revs (employees), it is a cost of doing business, whether it be a contract, or a perq for an employee.

Now if a F seat can be sold for purchase the non rev should be in steerage, however if it is in competition with Y pax either on discounted or full fare Y tix, then I'm not so sure that an employee is costing the airline any money by occupying a set.

I'm sure someone will say that pax will go to other airlines as I did but if all airlines did this then we wouldn't really have any where to go would we?

So from a cost perspective, I'm not sure that employees shouldn't ride up front, from a pax perspecitve I hate it. I think the airlines try to get the right mix to keep as many people as possible happy