The mainline carrier's response to a low-fare entrant should be competitive but not predatory. First, is the mainline carrier matching fares or deeply undercutting? Second, are they adding vast amounts of seat capacity to a route that has not supported the new amount of seat capacity in previous years?
Introductory fares often aren't profitable, so CO's matching a Kiwi introductory fare of $49 isn't predatory on its own. You say that Kiwi added "lots" of seat capacity on the market, I don't know what that means. If they offered an amount of capacity similar to what Continental was offering on EWR-ATL, and CO suddenly say doubled its seat capacity in response, yes I'd say CO's action was predatory.
But if CO edged up its capacity a little--say one or two additional daily flights with similarly-sized a/c on a route that previously had eight or nine daily flights--that's probably not predatory. The total seat capacity addition is the measure of what's competitive and what's predatory.
Also, did Kiwi continue to charge unprofitably low fares after the introductory period ended? Managers of a well-run business know what prices will make a profit and what won't, and they can't expect the government to protect them in running an unprofitable business. Are you saying that Kiwi continued to charge below their cost as a regular procedure of business? If so, they should have gone out of business on their own, regardless of DOJ, CO, or DL action. Which eventually they did--whether as a result of the ATL route or not I don't know.
So my answer is I don't know--it depends upon the particulars of the case. Low-fare carriers have to have good capitalization, a good business plan, and good yield management like anybody else. They can't expect DOJ to protect them from their own bad management. But they can and should expect DOJ to protect them from big guys dumping capacity and deeply undercutting them for a long period of time to destroy them.