[hoverkraft]

Collecting miles isn't necessarily focused on earning free flights. The tiered statuses offered by most airlines include a variety of other perks that can make them attractive, and that couldn't readily be achieved via lowest-bidder flying: dedicated lines at airport security, advance boarding, free upgrades, free bags, waived fees, greater flexibility to change a ticket, dedicated customer support numbers, etc.

While some of these can be purchased as one-offs, the cost of doing so would probably offset the "cheapest flight" approach, and the convenience of receiving them automatically has some value on its own.

The cost/benefit might still not be there, but it's not as straightforward as the ticket savings vs. free flight savings question you put forward. You have to also bear in mind that many miles hunters are logging some (or most) of their travel on an employer's dime.

[mindslight]

Those "benefits" basically amount to an easing up of the legacy airlines' prison-camp style. Why would one want to reward that instead of simply choosing the airlines that treat you more like a person to begin with?