As I understand it the partner businesses (Coles, woollies, whoever) pay the frequent flyer business for the points they give away.
The frequent flyer business sells a product that in effect costs it nothing (or next to nothing) to provide.
Reward seats are revenue managed and don't typically displace people paying real money for the seats - they are a perishable commodity and are a wasted commodity if the flight leaves with an empty seat, so as a result all they really cost is the delta burn for carrying the extra weight on the aeroplane and the catering.
In many cases the catering is full ship catered anyway so doesn't cost a huge amount anyway.
So, the frequent flyer business (insert airline name here) is selling a perishable product that doesn't really cost it much to provide.