I have mixed views on all this. I am a regular passenger on IOM-LGW (50-60 sectors a year); I am nearly always able to book well ahead; have an Electron card; usually travel light; so seldom pay more that £65 for a round trip, although I notice future fares are currently above that level. Current frequency is good and I have used each of BE's eight daily flights at some point in the last year.
On one level, anything that enables me to carry on enjoying cheap fares, and frequency, is good news.
However, I doubt that the London market is anything like as elastic as Liverpool, where the arrival of Easyjet has sucked passengers away from the Steam Packet, although, if you look closely at the figures, FlyBe are actually growing their share on that route more than EZY, due to frequency.
On the other hand, a single A319 is more or less the same number of seats that have just been lost on IOM-LCY. Obviously not a direct substitute in any shape or form, but in terms of the overall London market capacity, perhaps it is sustainable.
Much will depend on timing and frequency. Perhaps FlyBe will be able soak up the higher yielding business PAX displaced from LCY, and won't be too bothered about shedding low yielding leisure punters?
Time will tell how this plays out........