MAD flights can link with a partner - Spanair - and provide broader coverage. And Spain is a decent winter tourist destination. AC actually has more coverage of Italy via FRA than it has via FCO, and it has more coverage of FRA - nonstops from YUL, YOW, YYC and YVR as well as YYZ. I've always heard that FCO is like a charter route. Everyone flies on the cheapest fare, with little paid J traffic.
As for where the KIX and FCO planes will go, AC has to cover MAD plus dedicated services for EXE and SCL. If the 762s are removed, there is also the question of using 763s for Hawaii since the Airbus narrowbodies aren't suitable for that service.