How can it *not* hurt the flight school? A canceled flight is a canceled flight. Lost revenue no matter how you cut it.
Not to mention the customer service end of everything. One is that if I were a customer doing instrument training and my flight got canceled because my CFII wasn't current to fly in actual, I'd be upset. Or, on the other hand, if my instructor "demo'd" an approach or landing every now and then because he had no other way of staying current, I'd be upset that he's staying current on my dime. And it really doesn't even have to do with money at that point, it's more the principle that I'm not the focus of the training any more.
So you *are* providing instructor currency, you're just doing it cheaper than using an actual aircraft. Kudos to you
Also, to clarify, I'm not talking about spending massive amounts of time training to ATP standards. I'm talking about allowing the instructors to do three takeoffs and landings at night every 90 days and one IPC every six months. That should take about 2 hours of aircraft time. We're talking about $200 every six months...I consider it a cost of doing business.
And the final point I should add, I consider this as part of the deal with professional flying. You don't see corporate, charter, or airline pilots paying for any of their recurrent training. I don't think flight instructors should be treated any different.
Not saying you're wrong, these are just the reasons I think the way I do.