How to resolve Loser Wild Flare
One of the main things to remember here is that you "play" your encounter card face down, and then reveal it after both main players have done so. For reference, the rules for this phase are the following:


  
  Play Encounter Cards: After alliances have been formed, the offensive
  player and the defensive player each choose an Encounter card (Attack or
  Negotiate) from their respective hands and place them face down.
  Reveal Encounter Cards: Encounter cards are turned face up
  simultaneously. Or as close to simultaneously as possible in this
  imperfect universe.
  Determine Outcome: There are three different outcomes to an
  encounter, depending on what type of Encounter card (Attack or
  Negotiate) is played by each player. After Encounter cards are revealed,
  the encounter is resolved. Then Encounter cards are discarded. Details of
  encounter resolution are shown below:
  


The Loser Flare needs to be played before any player even selects encounter cards, as emphasized below. 


  As a main player, before encounter cards are selected, you may declare
  that both sides lose, sending all involved ships to the warp.


This would move the turn to the Determine Outcome phase since the outcome has been determined already (i.e.: both players lost, sending all ships to the warp). Since no cards are selected, no cards are played so no cards can be revealed.


  Should the main players still play their encounter cards? 


No. It specifically says that you must play it before encounter cards are selected. This creates an outcome so there is no outcome to be determined by playing encounter cards.


  If cards don't get played, is there still a Reveal phase?


Again, no. If there are no cards selected and then played face down, there is nothing to reveal. An outcome has already been determined.