Yup, it's reason #3. If the journey started from London, you'd get 46 kgs (2 bags). Jet and Virgin also do this, and Kingfisher used to too when they flew London (I think KF started the practice and others followed suit a few years ago).

Unfortunately the fee sounds like what they do charge - I was charged about the same rate by Jet when I had excess baggage some 3 years back