The problem is the absurd flight frequencies with smaller aircraft. I believe I read somewhere that future versions of AWS will limit frequencies between any two airports to a maximum of 10 flights per day per airline. If this is true then it will fix this exploitation of a loophole in the simulation and I, for one, welcome that. In reality, who would choose to fly an ATR-42 and take an hour longer to get to their destination over a B737? No one would.
On the other hand, it is not more realistic to limit the frequencys to 10 flights a day as mentioned above. To take an example from real life SAS and Norwegian is competing heavily on the domestic route Oslo Gardermoen(OSL) - Bergen(BGO) in Norway. I looked at the time table for monday 9th of may. SAS operates 16 flights from Oslo to Bergen, while Norwegian operates 12. SAS uses Boeing 737-400/500/600/700/800 on this route, Norwegian uses Boeing 737-300/800. The flight time is 55 minutes. So limiting the number of flights to 10 per day per airline actually makes it unrealistic the other way. On the other hand you don't see these airlines flying 30-40 daily flights with turboprops in real life. And they don't schedule the flights with 5-minute interavls either. SAS flights departs as following from OSL: 07.00, 08.00, 09.05, 10.40, 12.40, 13.45, 14.45, 15.30, 16.15, 17.00, 17.45, 18.45, 19.25, 20.15, 21.45 and 23.05. Norwegian flights departs: 07.15, 08.00, 08.55, 10.45, 13.20, 15.35, 16.20, 16.55, 18.20, 19.00, 21.00 and 22.15.
I would argue that in real life, after a certain point, you don't get any additional competive advantage by adding more frequencies. And after that point you would add more capacity by using larger aircraft. The problem is that this point varies from route to route. I.e. If you have mainly leisure traffic on a route, frequency doesn't matter that much. More business traffic on the other hand means that frequency matter more, but only to a certain point.