A mostly empty bus still generally has more than enough people to be more efficient than private cars (which is the real competition). And a mostly empty bus all day means people can trust it should something happen that makes them take an off-peak trip.
Which is to say a mostly empty bus scales down very well. The limits to scaling a bus are up not down - a problem more cities should have.
Buses are a service to take you from point A to point B. Your taxes fund them. It is a cost center. I don’t know why people think it must continually generate profit. A good transit system should be able to move people and generally helps stimulate local economy. The better the service, more people use it. Most buses and trains are electric now too, so they don’t pollute either.
In wealthy countries 2/3 of public transit costs is hiring drivers. Peak demand determines how many drivers and buses you need. If vehicles are completely filled customers will have to wait for the next one. So using smaller vehicles don’t save as much money as one would think.
Transit agencies are also capable of demand response. For example, you'll see more articulated busses at peak times in Austin. Also, large transit stops are used as queues to maintain consistent headways.
A great example of this in action happens each year for the Austin City Limits Festival [1]. A few routes have substantially more busses during those two weekends to deal with a couple hundred thousand extra passengers.
Yes. Buses are great at scaling up (much better than trains) for special events. They are bad at scaling down. A bus with less than a van-full of passengers is a huge waste of resources and roads space. In times of low utilization, buses shouldn't be blindly running their routes.
A bus route needs to run reliably all the time so that people can depend on it. There is little difference in the cost of running a large vs small bus so running a large bus all the time is almost always the best answer. And cities around the world discover that running reliable all day service means that you end up with more than enough passengers all day as to be worth it.
