"Back then" was in the days before LCCs were anywhere near as large as they are now. BA sold their regional ops in the form of BA Connect to Flybe (or rather paid Flybe to them off BA's hands) in 2007 for a reason
The days of each country having a national state-owned monopoly airline are largely gone (except for Alitalia !) - so each airline has to decide the market sectors it thinks it can do well - trying to be all things to all people just leads to AirBerlin