... if you don't stick to your rules and remove those who have reached their allotted number of demerits, you will lose the respect of the ones who have been following the rules and have not earned any demerits. Don't back down. You can re-evaluate your policies at the end of the year, but don't back track now... it will backfire on you and will be a morale crusher for the rest of the squad.
While I understand how hard it may seem to follow through, I agree with Pauliana, you have to follow through, or you are setting the stage for being wishy washy and inconsistent. Parents of the remaining cheerleaders will respect you as will the remaining cheerleaders for sticking by your word. Those that want to try out again next year will know that you mean business.
I don't have a demerit system and like another post, I can remove cheerleaders if warranted. That only happens after a parent conference and action plan for correction and collaboration with school administration - if the cheerleader/parent doesn't follow through with corrective action, then they are removed.