Ryan2000,
You made an excellent point that the seat mile cost of an A320 is lower than that of an ATR. The same argument can be made that the A380's seat mile cost is lower than an A380 yet we don't see them flying short haul sectors. The creation of seat mile values are a useful idea from an accounting view in terms of allocating overheads etc. but it doesn't affect the total cost of operating the aircraft (check the $/cycle cost of a PW100 -v- a CFM56 or even the fuel cost). The simple truth is that in terms of overall cost, operating an ATR on a short route is lower cost than using an A320.
If EI are having to drop prices constantly (and as a result dropping yield), then you quickly get to a point where even filling an aircraft with low yield passengers will result in you making a loss on the sector. I believe they would be wise to start using the A320's on appropriate routes where there is a) the demand and b) sufficient yield relative to their costs to make it viable. A deal with Aer Arann will result in access to a low cost operation (i.e. ATR's + RE crews etc.) while still maintaining a degree of the revenue. All of this is of course based on Aer Lingus's current cost base. Should this reduce, then the number of routes where the A320 can be used cost effectively increases.
These are just my two cents but I believe Aer Lingus are becoming a bit more realistic by understanding that while they're tickets are low cost(ish) their cost base is not (and will not be low cost for a while to come). Making an agreement with Aer Arann will maintain a portion of the revenue generated on these seemingly unprofitable sectors and allow in the more efficient use of their assests on alternative routes be they ex Dublin or further afield. Aer Arann also get access to additional routes, the benefit of selling under a known brand and depending on the agreement, a more steady income from their operations.
All the best,
P2C