The flights, running since 2007 and currently operated by Citywing and Links Air, gets a £1.2m annual subsidy.
The current contract ends in December and the assembly's Public Accounts Committee said several improvements are needed for the service to continue.
Liberal Democrats said the "wasteful, polluting" subsidy should be scrapped.
Flights currently run twice a day on weekdays, with none on weekends.
The committee heard that the service carried just over 65,000 passengers between May 2007 and April 2013, at an estimated cost to the taxpayer of £9m.
Passenger rates have now fallen by 43% since their peak in 2008-09.
2007/08: 14,133
2008/09: 14,718
2009/10: 9,491
2010/11: 8,719
2011/12: 9,606
2012/13: 8,406
Max number of seats available per year: 18,720
Source: Wales Audit Office evidence to the committee
AMs say it should be marketed more effectively and suggested promoting connecting bus services and the opportunities to get connecting flights.
Committee chair Darren Millar said: "The committee remains concerned that this service is underperforming when it comes to providing value for money for the Welsh taxpayer.
"The lack of reliable, independent data about passenger numbers, including the types of people using the service must be addressed."
North Wales Liberal Democrat AM Aled Roberts, a member of the committee, said his party would "scrap" what he called a "wasteful and polluting subsidy".
"This costly venture does little to address the real problems of public transport links between north and south," he added.
"Rail links are far more important for my region than this service.  Any public money should be spent on improving rail links between the north and Cardiff."
Responding to the committee report, a Welsh government official said: "The service improves business connectivity between north and south Wales, as well as boosting tourism opportunities.
"The process to award a future contract for this service has now started and will look for the best service for the travelling public, with the highest economic impact while at the same time minimising the cost to the Welsh government."
A subsidised air service between Cardiff and Anglesey is underperforming, a cross-party group of assembly members has warned.