I also find it interesting that people who have never worked in the tour industry try to figure out how it works.
A tour company offers tours. It has to figure out what it's going to cost to operate that tour. To decide pricing, it has to see what its competitors are doing as well. Most tours of certain areas will have very similar itineraries. They have to price it in such a way that they don't lose business to other companies.
I worked for a large international tour company that had two divisions. One mid level and one budget. The itineraries were basically the same but the prices were different. How? A number of factors...the budget tour stayed in lower quality hotels and had much of its sightseeing as optional excursions. The mid level tour, in most cases, stayed in slightly better hotels. Many of the optionals were included in the tour price.
As a tour director, I got paid the same regardless of which division I was working with on each tour. But how I made extra money was different. On the mid level tour, I got better tips. On the budget tours the tips were less but I got a commission selling and operating the optional excursions.
Surprisingly, or not surprisingly, someone taking the budget tour and signed up for most of the optionals actually paid slightly more than if they had taken the mid level tour in the first place.
But it was that initial price that hooked them on the budget tour. The same way a discount airline hooks people with the low fares but the final price may be higher once they start adding on the extras.
I also worked for a company that dealt mostly with Australian tourists. Australia is not known for tipping. So I had to get paid more from the tour company to keep me from leaving and going somewhere else. The price of the tour was also higher because the tour company had to pay the tour director more. (Similar to why a RS tour is more than a similar "tipping" tour.)
Coaches are hired from a coach company . Payments to drivers are set either by the coach company or their union contracts. The tour company has nothing to do with it.
The tour companies are not making a bigger profit because they expect their tour directors to get tips. The are keeping the price low to be competitive.
Tipping is not mandatory. You don't have to tip. It is a way of saying thank you to your tour director and driver for doing a great job and making sure you had a good time.
But look at it this way. Some of you don't leave tips wherever you go. Okay, that's fine. Others will leave 5 maybe 10%. And that's in restaurants. To a server who you may have contact with for an hour or two.
On a tour, that tour director is with you day and night. He is on call 24 hours a day.
I looked at an 8 day CIE tour of Italy. The price came out to be about $330/day not including transportation to Italy. They are suggesting a tip of $7/day. That means they are asking you to think about tipping your tour director just over 2% of the tour price.
I guess that is too much for some people even if you had a great time.
I'm no going to go on with this. Some of you are adamant that no matter what happens you are not tipping. Fine. Don't.