Those unit sales have to come from somewhere though, so the question is where is Apple aiming to get them? They're either from other iPhone model users, Android users, or new smartphone users (youth and newly developed countries) who could potentially go to Android. I don't think Apple is looking to take sales away from other iPhones especially higher profit iPhone Pro/Max models, so it's either Android users or new smartphone users who otherwise would go to Android. The other possibility is the phone is meant to retain iPhone users who otherwise would switch to Android.My thoughts on why Apple (and other smartphone makers like Samsung, Google, Motorola, Xiaomi, Oppo, etc) no longer offer a smaller display phone is not because there isn't demand. It's because they're trying to achieve max unit sales. Apple did keep the iPhone mini around for 2 generations so there obviously was demand. But the Apple bean counters probably saw how well the larger display iPhones were selling and thought to themselves "Hey, let's replace the mini with a Plus-sized iPhone. That should sell even better... maybe as well as the iPhone, iPhone Pro and iPhone Pro Max."
But guess what? The Plus iPhones did about as well as the mini iPhones. Apple then pivoted to the iPhone Air because someone thought the market wanted large but also thinner phones. So far, that demand is about as much as for the mini and Plus iPhones.
In 2 years, we'll probably see Apple try again with a replacement for the iPhone Air, not because there isn't demand, but because Apple wants to achieve higher unit sales. Higher unit sales means Apple can ask their parts suppliers for bigger discounts since Apple will be placing larger volume orders on parts. This helps their bottom line. In the end, that's all Apple cares about.
I think the only way to get/retain those sales is either with cheaper iPhones or offering something new that Android doesn't. I don't think Apple wants to go much cheaper, so I think Apple is just looking for a model that is somewhat unique.
But no matter what form this model takes, the idea that it needs to sell anywhere close to flagship numbers (unless it itself is a flagship) is very unrealistic. It's only taking the sales of Android users and potential Android users, so it won't be droves, it will be modest numbers in this saturated market.