BA have some distinct advantages operating budget short haul out of Gatwick such as wholly owned and depreciated fleet of 733's, the best slots, high quality staff, logistics in place etc.
Switching to destinations where people actually want to fly ie Malaga, Alicante, Barcelona from the huge catchment area that is the SE of England should steal customers not happy travelling to Luton/Stansted - therefore they will be prepared to pay more for the priveledge, so BA can make money.
However the cost base at Heathrow will always drag profitability down, so should be cut back first. Go was a success because it didn't have to pay for the Waterworld overhead - Gatwick would be too given half a chance. <img src="wink.gif" border="0">