To be honest, in the late 30's I'd much, much rather see the British use their limited shipyard space to rebuild HMS Vindictive as a proper light carrier, rather than waste time on redesigning HMS Hermes which is already functional as an auxiliary carrier.
Hmm, essentially I agree with you, Freebird, but I suspect Vindictive and the C Class cruisers might not have been suitable as carrier conversions. On paper they certainly compare with possible escort carrier conversions in terms of displacement, size etc, but none were done so. That would require a vast amount of redesign, but with the resources available in wartime, certainly feasible. In peacetime between the wars in a cost cutting environment the escort carrier doesn't make as much sense as devoting efforts to building fleet carriers. I suspect the Vindictive's only hope as a carrier is as a seaplane tender without a landing deck.
Hermes' problem was that she was a product of her time. There wasn't really much else to go off at the time expectation wise, except Furious and Argus, both of which were conversions of existing hulls. By the time she was launched in September 1919 they were just figuring out how to stop an aeroplane on a carrier deck; there was still a lot to learn and by the time she was introduced into service two years later, carrier aircraft had not progressed much beyond Great War technology. Even by the late 20s early 30s it was recognised the ship was too small and suffered inadequacies as a result, not to mention the trim issues, with rear watertight compartments being permanently flooded to maintain trim, that even dictated what specific grade of fuel oil it could carry. In late 1930 the carrier could carry eight assembled Fairey IIIFs, four assembled Ripons, and seven unrigged Flycatchers and because of hangar space there was none available for more unrigged aircraft. It was noted that Ripons in packing cases could be carried on deck, but it was impractical because of the strain on the deck, which hints at a not entirely robust structure/further exacerbation of the trim issues.
Could the RN have given it a new lease of life if under gone an overhaul? Probably if enough money was thrown at it, but to what end result (as our resident contrarian asks)? Certainly small improvements, such as radar and stuff that you mention, Admiral wouldn't have gone amiss, but the bottom line is that it was in the wrong place at the wrong time when it was sunk. Hermes (and Argus) could act only as ferry/training carriers owing to their size in the 40s.