I'm with LadyL on this. A large number of people with professional jobs who live in south east England fly almost entirely for leisure and just in Europe. Building status has little or no meaning as they don't fly enough within Europe to get to a higher tier before a 12 month period starts again. Without status, lounges are of no value. The range of European destinations served direct from London's airport system is vast and frequency is high - connections are unnecessary when there's most likely a direct flight at a comparable time.
BA will have a hard time regularly competing on cost against Easyjet from Gatwick. Thus, there needs to be something to persuadd these people not to go solely on flight time and price - providing a nicer experience (in return for a higher fare) is one way to attract these customers.