EBT there was never any intention to run them transcon, but your basic premise is correct - they were seen as a cheaper alternative to a -700 on east coast city pairs, particularly Sydney canberra
The logic still stands, if you have 100 punters on a flight then you are chockers on a 190 and just over half full on an 800. 1 less cabin crew member, pilots were a bit cheaper, it burnt less fuel and the ANC’s were lower, plus they were a shedload cheaper to buy than a 800, and at one point virgin owned most of them.
I can’t wrap my head around the logic of paying someone else to do your flying. Alliance surely aren’t doing it for free, so they must be making a profit. If they are making a profit it is a profit that VA could have potentially made using their own resources.
As for the product, it was a much nicer proposition than the 737 regardless of the outside paint scheme and the soft product inside. 2x2 economy with 1x2 J class is pretty comfy and it is quieter than the 737, lighter with bigger windows than the 737, and cruises at pretty much the same speed (somewhat faster than an ATR).
Getting rid of them was an act of hubris on the part of a couple of people - all of whom are no longer with the business having taken their bonuses and departed the scene happy.
It was terribly sad as many of the pilots were very happy on that fleet and would have stayed there longer if given the opportunity. I should also be noted that those same pilots are getting paid more to fly the 737 and they still would prefer the ejet.