Virgin Atlantic will stop running Little Red in 2015 after just 18 months in operation.
Virgin Atlantic launched its UK domestic flight network in March 2013.
The flights between London Heathrow and Manchester will stop in March 2015, while those between Heathrow and Edinburgh and Aberdeen will end in September.
Little Red was intended to act as a feeder airline for trans-Atlantic routes. The service was designed to challenge British Airways.
The aim was to help long-haul Virgin customers connect with other parts of the UK, but Virgin said most passengers were using it as a standalone service.
At its launch, the company pledged the airline would deliver “Virgin Atlantic’s rock-and-roll spirit as well as real value for money”.
Virgin said that bookings “grew steadily” in the early part of this year, but few of these were passengers connecting with long-haul Virgin flights.
“Little Red has unfortunately not been able to make a positive contribution to Virgin Atlantic’s network,” the company said.
Virgin Atlantic added that a scarcity of available slots and the speed with which the new service was launched had hampered its success.
Richard Branson, Virgin Atlantic’s president, said: “When the competition authorities allowed British Airways to take over British Midland and all of its slots, we feared there was little we could do to challenge BA’s huge domestic and European network built through decades of dominance.
“To remedy this, we were offered a meagre package of slots with a number of constraints on how to use them and we decided to lease a few planes on a short-term basis to give it our best shot.
“The odds were stacked against us and sadly we just couldn’t attract enough corporate business on these routes.”
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