Everyone is assuming that only Hostess is going to be able to fill that market space and once the company folds, there won't be that market demand anymore or no one else can fill that demand.
If the union did it's job, by that I mean a careful analysis of the balance sheets, it probably came to the conclusion that Hostess was just a poorly run company and all the workers are better off if the company folded and then try to get a job with whatever entity will buy up the assets to fill the market void left by Hostess leaving.
People act like a company/business owner/whatever is the only entity that can possibly fill some market void, and if you don't give them what they want no one else can possibly do it so there will be no more jobs or yummy goodies.
I don't know the particulars here, so I'm not really going to comment on if the union overstepped its bounds or not... but it can be perfectly rational for a union to hold its position firm and accept a company folding rather than taking a bad deal.