It’s usually a pejorative term, said with an implied or even audible sneer, but why should it be? After all, formal poetry is generally accorded respect.
Both formula fiction and formal poetry employ a template for their construction. In the case of poetry, the template is often very strict. Writing a proper sonnet involves a specific number of lines, each with a set number of syllables, deployed in a strict meter with a specific rhyming scheme. How formulaic can you get?
Formula fiction is usually considered formulaic because of its plot. Certain events are supposed to occur in a certain sequence with certain consequences and a prescribed ending. Hmmm. Sounds a lot like a set of rules for creating a story, kind of like the sonnet has a set of rules for creating poetry.
In both cases, fiction and poetry, the form or the formula is not the point of the writing. Forms and formulae are stages upon which writers work their magic. They are ritualized ways of telling a story or making a poem.
In fact, maybe we should be calling it “ritual fiction” instead. I’m ready if you are.