The PSO appears to be for a link to London not to a hub airport for international links, so wouldn't expect that aspect to be taken into consideration (and depending on the terms, may not be considered)
Yes, but wouldn't the fares to/from LCY be that much higher simply because LCY charges "business class" charges?
FlyBE had already announced they were pulling off the LGW route when CCC persuaded them to change their minds, at a time when FlyBE were in deep financial "doggy do" perhaps, just perhaps, a PSO deal has already been done and if it is to be to LCY then I guess the people of Cornwall will vote with their credit card details and might just decide to take the car or the train instead.
CCC need to realise that they are not in charge on this one, the traveling public are!