Cross-subsidization is to compensation for a loss generated by the business in the deficit with the profit generated by the surplus business. In the case of public transportation, it points in order to survive the loss making railway line, company compensate the loss caused by loss making railway line with the profit of side work such as surplus railway line and real estate business.
The merit of cross-subsidization is to prevent the abolition of routes and influence on regional traffic. Even if it said “loss making railway line”, not only cases where there are no customers at all, but also there are cases where there are regular customers while a small number.Therefore, if public transportation is forced to abolish routes, such regular customers are greatly affected by the convenience of their daily lives. Especially people who can not drive cars, such as students, elderly people, people with disabilities, are greatly affected. In response to this problem, internal aid prevents the abolition of routes, it can suppress the negative impact on regional traffic and prevent occurrence of traffic refugees.
The demerit of cross-subsidization is to put pressure on the management of the company. In this method, the profit obtained by surplus railway line will be used to compensate for the loss of loss making railway line, which will lead to a decline in profit. This is not good for the company. And if there are more losses, the worst case, there is possible that the company goes bankrupt.