I wonder if we could get away with the oversupply warnings for single flight to the destination.
It is not really the capacity of the aircraft that constitutes an "unfair" competition, but number of flights. For example, replacing a 110 pax 721 with 160 pax 722 gave me warnings all over the place, but in reality, 722 is going to carry exactly the same number of pax as 721 (with the allocation system as it is implemented), if the demand is, say 65 pax.
If the route has demand of, say 65 pax, what really makes it oversupplied is if someone flies 2x80 pax, not 1x160. Because 1x160 may be the only aircraft the airline has, while flying 2x80 means the player is going out of his way to oversupply the route, since 1x was sufficient.
If it was up to me, I would just get rid of the single flight oversupply warnings.