Hmm. How can the airlines possibly give away 25% of what you spend? They are only making 2% of what you spend from merchants for providing the card or something thereabouts.
edit: Maybe some airlines do it by only letting you use reward miles on seats that they wouldn't have been able to sell anyway or something along those lines. But some don't. I know Southwest reward tickets aren't heavily handicapped or anything lame.
1) Signing on bonus. That 75,000 miles extra reward miles is a "one-off" for spending a certain amount at the start of the card. There is a cost of customer acquisition (CCA) for a credit card member and presumably some of the CCA is factored into the bonus. The 'hack' is to constantly apply, use, bin and then reapply for cards to maximize the bonus.
2) $1000 in airline fare isn't actually a $1000 liability to the airline, because that is the market price where as to them the cost price is going to be less... and as you suggest if they restrict it to a few seats per plane the cost price is even less.
Because so few people actually redeem their FFMs. They hoard them up. And then quite often, completely in the terms of the program, they don't earn enough and their balance gets wiped.
And yes, reward flights usually require you to pay tax, and for popular routes there may be only one FFM redeemable ticket per class per flight. Meaning you have to book ages in advance, choose less popular routes/times or be damn damn lucky.
edit: Maybe some airlines do it by only letting you use reward miles on seats that they wouldn't have been able to sell anyway or something along those lines. But some don't. I know Southwest reward tickets aren't heavily handicapped or anything lame.