The council-owned bus company set up Lothian Motorcoaches last month, with five new executive coaches as well as new drivers and tour guides.
But well-established operators like Timberbush and Rabbie’s claim the new business represents unfair competition.
They say it is undercutting them on prices, may deter future investment and could cost jobs. Steve Spalding, CEO at Timberbush Tours, said: “Ordinarily we would be quite happy to see competition coming into the marketplace.
“Tourism is doing fairly well in Edinburgh just now. And on the surface you might think Lothian Buses has seen what they think is an easy cash cow to tap into.
“But with Lothian Buses being owned by local authorities, it makes it a whole different ball game.”
He suggested the new buses and hiring new staff could cost around £2 million.
“You need collateral behind that,” he said. “It’s not your average start-up scenario.”
Mr Spalding said a typical price for a day trip from Edinburgh to Roslin and the Borders might be around £40, but Lothian Motorcoaches were charging £28. “The council is underwriting the operation, but that comes back to undermining the employment security of our staff,” he said.
Mr Spalding said tour companies had grown in recent years, but there were uncertainties around.
“In the last year we have invested £1.5m in vehicles and training,” he said. “Would we invest another £1m if on top of Brexit and the value of the pound there is a new player in the market underwritten by council funds? Does that seem like a level playing field?”
Another operator, who did not want to be named, accused Lothian Buses of being “anti-entrepreneurial”.
He said: “I think it’s completely wrong that a state enterprise is competing in a healthy private sector market.
“They are using profits from their operations to set this up, but ultimately it is being underwritten by taxpayers, which is you and me, so we are underwriting a competitor.”
And he pointed out that under Lothian Buses’ articles of association, their remit could also include bars, restaurants and cafes. “So what is next?” he asked.
Edinburgh’s coach tour operators have protested to the Scottish Government in a letter sent to ministers by the Scottish Destination Management Association.
Lothian Buses managing director Richard Hall said: “We’re a commercially-run organisation that’s able to invest in new products and services. Scotland’s thriving tourist market offers plenty of opportunities and well-run companies have nothing to fear from fair competition. In fact, we’d say a healthy marketplace is essential for consumer choice, driving innovation and standards.”
On the possibility of opening bars or restaurants, he added: “We’re a transport operator and we will continue to focus on complementary services.”