I would say that option 1, canceling the Wednesday competition makes the most sense as many people can not be there as they have school or jobs to go to early on Thursday. I have always wondered why this was taking place on a week day anyway, unless we're just trying to get it over with as early as possible. Actually, I would think Saturday or Sunday, either one, would work just fine as it is on Saturday the turnout is much better.
As for option 2, it doesn't make a lot of sense to break up a team that is used to working together. Bringing pilots from one team to the other benefits the second team more that just numbers, as they know the tactics their newly found enemies use. That may bring an undue disadvantage to the team losing pilots.
If the blue team can't get their pilots motivated enough to show up, that's not the red team's fault, and should not be their problem. Perhaps they should work on that.
My vote, if there is one, is that option# 1. It's really the only viable option.