I think the issue here is that flagship != top of the line anymore. For the iPhone pre-2017, the device targeted at their average customer was also always the latest and greatest. But with the release of the X, Apple introduced a new high-end line meant for enthusiasts, while most people would still be pushed towards the 8 (and now the XR). So the XR isn't really a budget model in the sense that the 5c and SE were, but rather the next entry in the mainstream iPhone continuity, while the XS is the second addition to the "pro" line.
Hedging their bets? Since iPhone XS devices are are a rather large risk and they need something to fall back on in case they don’t do well. If they do, we may not see a successor.
iPhone SE was probably a similar bet since a lot of people were complaining about the large iPhone 6/6S — not to mention the Plus variants.
Hmmm... then why the iPhoneXR?