I'm in full agreement with C3B, I frequently use GIB to get to LHR, the sticking point is the border, you can be stuck there for up to 7 hours with queues around all the houses if the Spanish so choose to check every single vehicle; as I travel in and out of LHR every week, it's a risk and many times I fly from XRY via MAD.
Since the financial crisis the XRY-MAD route, formerly operated by a 320/319 5-6 times a day, is now operated by a CRJ, frequently a 1000 series is subbed by a 50 seat 200 and the rotation has dropped to 4 per day. A lot of this is related to the crisis but also the introduction of the high speed train from Cadiz to Madrid. the point I'm trying to make is that within the same area as GIB, IB have difficulty to even sustain domestic services - tickets are expensive and service is non existent.
GIB is a British Overseas Territory, it needs to be reclassified as part of the UK proper, in the same way that the French deal with their overseas territories, then the Spanish would have no further case to restrict the border ( although they would probably still try). But even if this happened a Gibraltar National Airline would be a non starter