There is a proven case that for INBOUND business pax from Europe and the US, being able to make the trip throughout by plane, in timetables published worldwide had a signficant positive impact on the ability to develop business contacts with those other places.
By no means everybody wishes to start or finish their trip in Central London (not that Paddington, being in W2, easily passes many tests for being in "Central" London - there was a challenge through the Advertising Standards Agency a while ago about Heathrow Express saying it was), and the proportion of business travellers who do wish to start there falls as the years go by, so somewhere near the M25 attracts a different passenger group. Which is true of many domestic flights - they are actually not directly competitive with rail, but attract different passenger groups.
Yes the train is more frequent and serves many more points in the South-West, although the way that train fares have gone, being double or triple if you don't tie your trip to a single departure booked in advance, much of that frequency advantage is lost.
You are correct that Gatwick doesn't have the impact that the Heathrow schedules in years gone past had. Which is probably why ASW can't make a go of it long term. I would have thought that an Air France route from CDG to Plymouth/Newquay would do well for intercontinental connections and some O&D on top.