They won’t be gobbled up if they aren’t offering a better service. Then that just clears the way for yet another competitor to come in and offer better service again until the large airline improves enough to make entering the market unprofitable.

Big companies buying small companies is good. It’s a reward for improving the market. Big companies preventing smaller companies from even starting via government regulation (i.e. regulatory capture) is what’s bad.

Giving it to the government is just skipping to the worst possible outcome. Nobody has any incentive to compete.