Reconfirming that the group as a whole was on track to make a profit by the end of this year after two years of losses, Virgin Atlantic said the decision on Little Red followed a review of its network which has put a new emphasis on its transatlantic routes.
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The Little Red service did not provide enough feeder traffic onto Virgin's transatlantic and other international routes, the airline said on Monday.
Little Red was launched by Virgin in March 2013, using runway slots at London Heathrow which became available following the acquisition in 2012 of Heathrow-based short-haul airline bmi by Virgin Atlantic's arch rival British Airways.
Virgin said the services provided choice to consumers on routes between London, Scotland and Manchester, which were otherwise dominated by BA.
Rivalry between Virgin Atlantic and BA dates back more than 20 years to the so-called "dirty tricks" affair, when Virgin accused BA of conducting a smear campaign. More recently, IAG's chief executive Willie Walsh has been quoted in British media as saying that Little Red was a "mistake".
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Virgin Atlantic's chief executive Craig Kreeger blamed the "inadequate" number of runway slots made available by regulators for Little Red's failure.
"While this challenged environment meant Little Red ultimately did not deliver the results we had hoped, this certainly will not dampen our enthusiasm to try new things in the future," he said.
Little Red will stop flying between Heathrow and Manchester in March next year with its Heathrow to Edinburgh and Aberdeen flights ceasing six months after that.
Branson had said as recently as in March this year that he wanted to see a new runway built at Heathrow so that Virgin Atlantic could expand the Little Red short-haul business.