These airline backed flying schools are just a way to keep an oversupply of pilots fighting for the few jobs on offer every year. Lots of applications means downward pressure on wages.
Exactly just have a look at what happens in Law and Engineering. All the big operators throw money at universities to keep the cost of getting a degree down to oversupply the labor market. Same would happen in Medicine if there was no intervention to limit supply.
There's no shortage of low time pilots. There might be a shortage of experienced pilots but you won't address that by churning out more low time pilots.
However these days low time pilots are walking into turboprops. The airlines will then ensure the exemptions are all in place so they can be made Captain. That way the Airline has complete control over its labour supply. CASA has also helped out by locking up instrument ratings with your company and by making the ATPL Flight Test prohibitively expensive.
All these factors reduce competition in the pilot market and basically give Airlines a monopoly on pilot supply and thereby giving them control of their employees.