The Significant Impact of Decreased Travel from Canada to the U.S. on Canadian Airlines
The recent decline in Canadian travelers heading to the U.S. has profoundly affected one major segment of the Canadian market: the airlines. As the leading carrier, Air Canada has responded to this significant drop in demand by cutting back on U.S. flights while enhancing operations in other regions, including Europe, the Caribbean, and Mexico.
Despite these adjustments, Air Canada remains optimistic about a rebound in U.S. travel demand next summer. However, this optimism comes with risks, largely due to prevailing negative sentiments among Canadians towards the U.S. This discontent is fueled by tariffs, ongoing political uncertainty, and comments from the U.S. administration, which have strained relations between the two nations. According to Statistics Canada, the number of air trips from the U.S. to Canada decreased by a staggering 25.4% year-over-year in August, highlighting the ongoing decline in travel.
A closer look at Air Canada’s operations reveals a 9.2% decrease in its U.S. seat capacity compared to the previous year, according to data from Cirium. Nonetheless, the airline announced plans in late September to restore its U.S. flight capacity to the levels seen in the summer of 2024. McGill University’s aviation management lecturer, John Gradek, opined that Air Canada’s strategy reflects a belief that the current downturn is merely a temporary phenomenon, likely to stabilize by the onset of winter when Canadians traditionally seek warmer destinations.
Air Canada has yet to comment on the matter; however, it seems to be banking on the assumption that negative Canadian sentiments towards the U.S. will soften over time. This is particularly relevant as many Canadians have deep-rooted ties across the border, including family and friendships that maintain the allure of the U.S. “Winter will tell the tale about whether there will be a rebound,” said Jeff Barrow, owner of Toronto-based Fourth Quarter Aviation Consulting. He believes that as the seasons change, so too will public sentiment, given the extensive travel connections between Canada and the U.S.
Other airlines, like Porter Airlines, are also following suit by ramping up their services to the Caribbean, Mexico, and Latin America. For its part, Air Canada increased its flight offerings to these regions by 9.8% in the third quarter, while also boosting operations domestically and to Europe by 5.2% and 7% respectively. However, Gradek warns that the substantial drop in cross-border travel has adversely affected the airline’s revenue, as transborder flights typically account for about 20% of Air Canada’s earnings.
Air Canada’s third-quarter earnings are still pending, but the impact of a recent four-day flight attendants’ strike, which is expected to have caused a $269 million decline in operating income, will undoubtedly play a role in shaping its financial performance. In the second quarter, Air Canada’s operating margin fell slightly to 7.4%, down from 8.4% the previous year.
The deteriorating sentiment among Canadians towards the U.S. has raised concerns among U.S. officials, including Ambassador Pete Hoekstra. He recently alluded to the possibility of closing U.S. Customs and Immigration Preclearance locations in Canada—potentially dismantling a program that has been in place since 1952. Hoekstra stated, “We’re not sure we can make the numbers work anymore. … Preclearance is something that is done at the expense of the U.S. government,” during a forum held in Banff, Alberta.
Gradek also highlighted that further actions by the Trump administration could adversely impact Canada-U.S. travel or specifically target Canadian airline operations. Incoming increases in U.S. tariffs on Canadian products like lumber and furniture could further diminish business travel demand, further complicating recovery efforts.
Canadian airlines are also focusing more on attracting U.S. customers looking for one-stop connections to Europe through Canadian hubs. Air Canada’s newly planned routes from Cleveland and Columbus, Ohio, to Toronto are indicative of this strategy. However, Gradek cautions that the implementation of a new tax on such itineraries or the termination of Preclearance could severely undermine these efforts. “That would be devastating,” he stated.
