LF is irrelevant. Profit is not.
Are your 4 or 5 flights a day making good money? If yes, why would you consider shutting them down? Is dropping prices earning you more money, or is it only getting you a few more seats sold but less money?
And yes, it's inevitable that the more competition on a route, the less pax you're going to get. You've got 5 flights, 300 seats each. If the other guy has 5 flights as well, you'll each get ~230 pax/flight. If the combined comp has 15 flights, that's 20 flights total, you'll each get ~115. In simplest terms, that's how it works on any route. 115 people on a 300 seat widebody can still make plenty of money though, especially when there are a lot of C & F seats sold.