I have mixed views on this. On the one hand competition is healthy for consumers, and easyjet seem to have taken more pax from the Steam Packet than FlyBe on the LPL route. On the other hand Luton is not where I want to go to, and, I suspect, nor do the majority of the current crop of London bound pax. Yet if easyjet do operate a Luton service it will reduce the number of occasional pax currently using the LGW/LCY services and although that may not drop yields significantly, it will drop load factors and might threaten frequencies.
If they were to go to LGW then I have to confess that, even to me, their pricing model is more attractive to that of FlyBe. Their hand baggage allowance is far superior for business travellers, and no doubt would also be attractive to many leisure pax. But frequencies would really suffer.
In this present strained financial climate though we are unlikely to enjoy the protracted price war that EMX started. The market is finite, and neither airline would be able or willing to stand losses for long.