Simulating the battle.
Turn 1
Wait with fairies
Master gremlins shoot, dealing 2 HP damage (distance penalty)
Fairies fly
Turn 2
Fairies deliver an unopposed strike, dealing 4 HP damage (1 gremlin)
Master gremlins strike, dealing 2 HP damage (melee penalty), 1 fairy dies
Fairies retaliate, dealing 2 HP damage
Turn 3
Fairies strike, dealing 2 HP damage, another gremlin dies
The last gremlin strikes, dealing 1 HP damage
Fairies retaliate, dealing 2 HP damage
Turn 4
Fairies strike, dealing 2 HP damage and killing the last gremlin.
Battle results:
All gremlins (3 units) and 1 fairy died.
As for a two on two battle - it depends on how things play out.
The only scenario in which the master gremlin wins is specifically a 1 on 1 battle. As the number of opposing combatants increases, the fairies' advantage immediately becomes apparent.
That's how it stands.