One way or another they have no incentive to be anything but terrible to their passengers.
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-...
I believe it's thanks to that competition being mostly low-cost that we've now got a race to the bottom in terms of customer service.
Luckily delay compensation exists in the EU, otherwise there would be no difference between them nowadays.