>> It's what happens when the only airlines are flag carriers that don't have to worry about competition because their respective governments will keep them in business.

Governments cannot provide aid beyond what a reasonable investor would do. The current European Commissioner for Competition (incumbent since 2014) has had particularly strong focus on that. Several flag carriers that got unreasonable subsidies went bankrupt after they were forced to pay back subsidies.

Beyond the European Commission, competitors can challenge approved aid, and they have done so, and they have sometimes won: https://www.reuters.com/business/aerospace-defense/eu-court-...