To examine the operation efficiency under current subsidy schemes, the study developed stochastic frontier analysis (SFA) models specified in the translog functional form based on route-level data; in particular, three SFA models, focusing separately on cost efficiency, cost effectiveness, and service effectiveness, were developed. The study applied a one-step approach to simultaneously estimating the cost function and the effect of external factors on operation inefficiency for inter-city bus routes. A two-stage residual inclusion approach was also adopted to examine the potential endogenous relationship between route outputs and route services. The analysis results showed that operation subsidy was positive to the cost efficiency of routes and negative to their cost and service effectiveness. The results also showed that route operation performances were heterogeneous among operators after environmental factors were controlled. On the other hand, the study confirmed that route characteristics (e.g., route length, and service frequency) and environmental factors (e.g., potential captive riders) were significant to route operation performance.