Because it's highly unlikely that the line as it is exists comes anywhere close to covering it's costs.
The return fare between Middlesbrough and Whitby is only £7.50, and given the passenger statistics for stations on the line I doubt the farebox is much over a million pounds a year.
Tweaking the timetable is unlikely to change the lines financial situation, at which point I have to ask whether or not the money spent supporting it is the best use of a finite quantity of public money.
I think the problem with that argument is threefold: Firstly, it neglects the possible benefits of running the line, even as it currently is - in terms of keeping at least
some cars off the road - given that it's been remarked that Whitby is already extremely congested. Plus the usual community/social benefits of having the line.
Secondly, it neglects whatever payments NR are receiving as open access charges for allowing the heritage railway to use the line, plus the economic benefits of having the heritage line run to Whitby (which would obviously be lost if you closed the line to save the subsidy).
And thirdly, if you did close the line in order to save whatever the current subsidy is, it almost immediately becomes far more expensive and harder to turn it into a decent line, with the investment required to provide a much better and more attractive service, if that's deemed appropriate at some point in the future - since you'd now be talking about re-opening a disused line rather than merely upgrading an existing one.
I think we agree that the ideal solution would be for the Government to stump up the cash to massively improve the line so it can run at least a two-hourly frequency with much better journey times on more suitable rolling stock. (And I'd argue for half-hourly at the Western end where the line goes through a fair bit of urban area and could usefully serve as a metro line, hourly at the Eastern end: After all, places like Windermere, Aberystwyth and Tweedbank all manage to sustain something approaching or exceeding hourly). However, until/unless that happens, keeping the line going roughly as is does at least preserve the line intact so that it's available for future improvements if/when the Government decides to act on it.