A bus service used by nearly 1,200 passengers a week is being withdrawn because too many of them are elderly people travelling on free passes.
Stagecoach said it had invested in new buses for the routes
The number eight bus from Worthing to South Ferring in West Sussex is being cut from Monday and two other services from the town reduced.
Operator Stagecoach said Sussex's free fares scheme had left it £2m short.
Worthing council, which administers the scheme in the borough, said it could not pay the bus companies any more.
The number eight bus was introduced in April 2006 using low-floor vehicles.
At certain times of the day, 80% of passengers were travelling free.
Stagecoach, which operates 70 buses in the Worthing area, said it had invested £3m in new vehicles and improving the frequency of services.
It was timed to coincide with the introduction of the Sussex-wide countycard to give free travel to elderly and disabled people.
The government funds free off-peak bus travel but it does not take the number of pensioners in each area into account.
In Worthing, 27% of the population is over 60, higher than the UK average, which Stagecoach said contributed to the problem.
"My only recompense is to pressure and lobby and, if necessary, take legal action against the local authorities," said Andrew Dyer, managing director of Stagecoach South.
"But I do have great sympathy with them because the way government money is allocated to local authorities does seem very odd."
Worthing Borough Council said it had allocated 6% of its annual budget to the concessionary fares scheme.
"We have a problem that we are looking for efficiency savings within the council at the moment and we can't afford to pay any more to the bus companies," said Councillor Bryan Turner.