Eoinok:
I looked at this a couple of months ago for a different project. LTN and LCY have (very roughly) comparable off-peak charges, but at peak times... well, let's say that the approach isn't the only aspect of LCY that's steep.
See
LCY charges (PDF file) for details. Off-peak landing fee: GBP145. Peak: GBP685
And since "Peak" relates to any aircraft on the ground at LCY between 0715-0930 or 1700-2000, it's pretty hard to avoid for a good business schedule.
Add to that a PLS of GBP14.25 per departing pax and an ATR42 with say 40 pax each way will cost you about GBP16 per (arriving or departing) pax just in LCY charges. LTN meanwhile was about GBP6 per departing pax, plus GBP2/tonne landing fee and GBP100 navigation services, so the same ATR42 (17 tonnes MTOW) would come out at about GBP4.60/pax if my maths is right. (I take the ATR42 for comparison as the ATR72 isn't approved for LCY).
Now we could make a reasonable case that an extra GBP11 of one-way yield is achievable into LCY compared to LTN... but I'm not sure about the volume. I'd guess that a fair proportion of RE's LTN pax are either leisure passengers looking for the lowest fare, or else are doing a DIY connection on to an EZY flight out of LTN, and LCY wouldn't suit either of those groups. I suspect a switch to LCY would lose more revenue than it would gain.
Add to that the peak-time slot shortage at LCY, and the need for crew training for the steep approach, and this might go some way to explaining why it's less attractive to RE.
C.