I doubt Flybe was thinking ooo lets have a go at Blue Islands. They are so small compared to some of their competitors I dont think Flybe give a monkeys what Blue Islands do to be honest.
Flybe have operated inter-island flights for a long time with pax being able to book between JER/GCI on the BE501 BHX service and BE312 Exeter services. The adjustment, the cargo element, is being looked in to at a number of Flybe destinations where there isn't already an agreement in place.