TBH I think flight delay compensation should operate more along the lines of Delay Repay based on the fare (the headline price, not removing taxes etc) than a fixed sum. A rare occasion on which I wholly agree with Michael O'Leary!
I don't. EU261 only kicks in if it is the airline's fault, and so the scheme should have a punitive aspect to it.
To answer the OP's question, though, the answer is no. What is causing Flybe a headache is EasyJet. Flybe build up a strong base on certain domestic routes and, once established, EasyJet come in with an Airbus and dump capacity at the most popular times, ignoring the rest of the week. As others have noted, they're about to do this on Birmingham-Scotland too.
I don't think APD cuts are the answer, though, or at least not across the board. It should be targeted at certain airports, just as Inverness is exempt from APD and Belfast International is if you're flying long-haul. Newquay would be one such airport. APD cuts aren't going to solve the real issue of EasyJet cherry picking.
The idea that rail can replace air is a fallacy, no matter how much the HS2 tubthumpers try to claim that the project will magically fix everything. Airports are as well connected as railway stations to urban transport links, so the time taken to get to the airport counts for the train. And as most affordable train tickets now are specific to one service and worthless if you miss it, I always aim to be at the station 30 mins before my train.