I had a feeling that the writing was on the wall for this service after JetBlue announced that they would begin flying between Hobby and New York JFK in last September. And indeed, the airliners.net discussion about this service cut indicates that, while ATA's primary reason for dropping the route was their decision to do away with the type of Boeing 737 aircraft that flew this route, the competition with JetBlue was a factor as well. As one poster connected with ATA explained:
Yes, competition on the route was fierce and it had great loads initially, but the main reason for dropping it was returning the aircraft since a 3 aircraft sub-fleet is not cost efficient. Returning the aircraft is only capable if one aircraft's worth of flying is cancelled. The weakest route happened to be HOU-LGA and thus its ending May 7. Since the September 2006 entrance of B6, this route has been difficult.(B6 is JetBlue's IATA airline designator.)
As somebody who prefers Hobby Airport for domestic travel (if for no other reason than the fact that it is much more geographically convenient for me than Bush Intercontinental), it's always a bit disappointing when its service offerings are reduced. But that's the nature of competition in the airline industry. Five daily flights to New York (even if to different airports) were probably too much for a secondary airport like Hobby to profitably support.