Personally I don't think FR will have a major impact on LS at LBA, at least I hope not.
FR will attract the short break passenger type who can take advantage of their low fares by travelling with hand baggage only.
LS on the other hand should retain the majority of existing customers and indeed attract new custom with the introduction of new routes, specifically those who must take hold baggage which I would imagine is the vast majority of holiday passengers.
LS are spot on with their current advertising campaign regarding cost of hold baggage.