It seems like Flybe chose a strategy to differentiate away from Locos with smaller aircraft, thinner routes and a more premium, old style pricing structure. It didn't work.
They didn't really. Rather they tried to fly routes that would not support a 737/320. Yes you might be able to fly a couple of times a day between SOU or BHX and EDI with those bigger aircraft, but you couldn't offer business friendly frequency. The problem remains for flights from airports like EXT,SOU,BHX, EMA, NWI etc. Many people want to fly form these but not at business Eastern airways type prices- other folk will travel to BRS,STN,LGW to get a loco fare. I don't know if the niche I have explained which Flybe were trying to fill, is profitable in the new era.