Skipness, there has always been overcapacity on Domestic routes but what's happening with domestic at the moment is airlines, like BD realising that reducing capacity will improve yield (supply v demand). Flying EMB145 is probably a higher per seat cost but less capacity means they can increase prices.
Also, airlines have realised recently that with a more rationalised fleet post recession there are more lucrative opportunities in Europe, hence the only way they can serve these markets is to pull off or reduce non profitable domestic markets.
Phew, that's the economics over.
