What % about capacity can you go on routes and still pull a decent margin?
That really depends on the route and the plane you use on it. But I'll give you a couple of examples:
Mexico City - Panama City (MEX-PTY)
Estimated demand: 280 (330 Max on Friday, as few as 240 on Saturday)
I serve the route with two daily 737-700. My competitor has four E190 on the route. Total daily seats on the route is over 650. So neither of us has fabulous load factors. My overall LF on the route is 41%, but it is making money. It's got a yield of $0.12 per RPK, which is better than my 777 routes do with 92% loads.
In fact, 100% of my short/medium-haul routes and most of my long-haul routes from Mexico City has at least one competitor, either the other player based in MEX or the player on the other end of the route (or both).
Bahrain - Gdansk (BAH-GDN)
Estimated demand: 130 (150 Max on Friday, about 115 on weekends)
I fly a 163-seat MD83 on the route. Competitor flies a 125-seat 737-300. Total daily seats is 288, just over double the demand. I have a whopping 29% LF on the route but because I charge a high enough fare and there are at least 47 people willing to pay to ride my MD83, it pulls in about $13k a day. Not great, and routes like this are balanced with fuller planes elsewhere, but if I only flew routes with no competition I'd only need about six planes instead of 133. Again, nearly all of my short/medium-haul routes have competition from the other end of the route (I am the only airline based in Bahrain) and about half of my long-haul routes have competition, and yet I average a net profit of over $10M/week.
Long story short: don't shy away from competition. If there is demand, even if it is already served, people will fly on your planes. That said, if the demand is 1000 pax a day and there are eight airlines all flying 1500 seats a day for a total of 12x the daily demand, trying to carve yourself a piece out of that pie with an A380 is going to be the fast-track to bankruptcy.
If you want to try your hand at a present-day game, take a look at Game World #2. There's only 15 game years left, or about 4 1/2 months (ending in mid-January). The number of active players has dropped below 200, as it often does with a mature long game world. This one started in 1960 and has been going for longer than a year. There have been some recent large bankruptcies. If you want to start in the US, look outside the big hubs. Atlanta, Los Angeles, Chicago, those are full of mega-airlines all trying to beat each other to death. But Baltimore only has one airline, as do San Diego and Cincinnati. Raleigh is empty and a startup could have a lot of 50-seat routes to themselves. That would be a good place to start a Q400 carrier.