I fear that capacity led expansion is exactly what got Flybe into a position of peril. They signed up to an order for up to 140 Embraer 175's, most likely in the expectation that they would sign capacity agreements with Europe's major legacy carriers much as you find in the US. The problem is that Europe wasn't really ready for this type of consolidation and Flybe couldn't get enough traction from the legacy airlines to push them into it. Union issues and state ownership prevented such moves. Only BA have been willing to hand over their regional subsidiary, but in doing so left the market entirely when they sold BAConnect.
Will Flybe expand? Sure, in time I think they will but rather than having an order book that they're obliged to take, they now have a position of deciding whether to extend or terminate leases instead depending on demand. Sure they'll need to order more aircraft to expand in future but the current position is all about creating a stable platform to support the growth and this was something that Flybe simply didn't have. There wasn't enough underpinning the plans but slowly, things seem to be turning a corner.