A small, friendly and relaxed airport, easily accessible from the city: just what the British traveller does not need. The owners of Plymouth City airport have announced the loss-making facility will close by the end of the year, saying "there is no realistic prospect of trade improving in the near future".

Plymouth's airport, just north of the city centre in Roborough, is one of the oldest in Britain. It opened in 1925, with its main role initially to distribute mail arriving from across the Atlantic via a link to Croydon aerodrome south of London.

While Plymouth is the most isolated big city in England, its quarter-million people do not use the airport in sufficient numbers to make the airport viable. The owners, Sutton Harbour Holdings, incurred an average loss of £8 for each of the 350 passengers who flew to or from the airport on a typical day last year.

At the start of 2011, the airport offered links to 10 airports in the British Isles, all on Air Southwest. But in January the long-standing link to Gatwick ended, cutting the number of passengers each day by about 100 and accelerating the airport's demise.

The land is leased to Sutton Harbour Holdings at a peppercorn rent by Plymouth City Council. It is likely to be used for housing unless a new owner or business model can be identified. A city council spokeswoman told the BBC: "Under the terms of the lease, we have until late December to explore all options for the airport." She said discussions had been held with other airport operators and with 16 airlines.

The closure is symptomatic of the reality that Britain has rather too many airports for a small, crowded island to support. Plymouth has a natural catchment area covering the western half of Devon and eastern Cornwall, but found itself as the "squeezed middle" between Exeter and Newquay. Unlike those airports, Plymouth City has tight constraints on the aircraft that can take-off and land.

Newquay has established itself as a low-cost gateway to Cornwall, with flights from across the UK and even a summer service on Lufthansa from Dusseldorf. And Exeter, which handles five times as many passengers as Plymouth, is the home base for Flybe, Europe's biggest regional airline.

Elsewhere in Britain, multiple airports serving the same catchment can work well. The tension between Liverpool John Lennon and Manchester offers choice and competition for travellers in north-west England, while in the south-east newly independent Gatwick is challenging Heathrow. But Devon and Cornwall have a combined population of 1.25 million. For them to be served by three airports, with another at Bristol easily accessible, proved unsustainable.

Plymouth appears set to follow Coventry airport, where passenger flights ended three years ago, into civil aviation oblivion. The closure will raise concern at some of Britain's other small airports that have a bigger rival nearby.

The expansion at Southend will accentuate the "two-nation" division of the UK's airports. London is by far the biggest aviation market in the world, in terms of passenger numbers – way ahead of New York, Tokyo and Paris. This supremacy is partly the result of the concentration of air traffic around the capital at the expense of regional hubs. Both Germany and Italy have "dual hub" arrangements, with Frankfurt complemented by Munich and Rome by Milan. But successive attempts to make Manchester an alternative to London have failed.

Heathrow remains the premier European airport, and has a near-monopoly on transatlantic services from the UK. Airlines can command much higher average fares from Heathrow than from other airports. As a result, precious take-off and landing slots have progressively shifted from UK domestic routes to long-haul services. Only Manchester, Newcastle, Edinburgh, Glasgow, Aberdeen and Belfast now have links from Heathrow, a far smaller number than comparable airports in France and Germany.

Some in Plymouth will blame the airport's decline on the ending of services from Heathrow a decade ago. For a city the size of Plymouth to have no connection to the nation's biggest airport is a significant blow for both business and tourism.

Small airports that could soon be grounded

* Durham Tees Valley between Darlington and Middlebrough, and close to Newcastle, saw passenger numbers slump by one-fifth last year to 225,000. BMI recently ended its long-standing link to Heathrow.

* Blackpool charges an "Airport Development Fee" of £10 for every departing passenger aged 16 or over. The facility at Squire's Gate styles itself as "The regional airport for Lancashire and the Lake District", but these areas have excellent links to Manchester airport, including frequent direct trains.

* Humberside is plugged into the intercontinental network courtesy of its three daily flights to Amsterdam, but the only other scheduled destinations are Aberdeen and Alicante. It is only 25 miles from Robin Hood Doncaster-Sheffield, the former RAF base that became a civilian airport six years ago.

* City of Derry airport is another former RAF base, now owned by the city council. They intend to raise its profile and reduce subsidies, but it faces intense competition from the two Belfast airports for a small population.