Potential Impacts of US-Canada Tariffs on the Canadian Aviation Sector

On 4 March 2025, the United States imposed broad-based import tariffs on merchandise goods and energy products from Canada and Mexico. The Government of Canada has responded with a package of retaliatory tariffs covering CA$30 billion worth of US goods in the first stage, with a second stage of tariffs that would cover an additional CA$125 billion of US products. The following days have brought further changes to the tariff situation, leading to further uncertainty over the short- and long-term trade policy situation. With the breakdown of the long-standing and mutually beneficial trade relationship between the United States and Canada, what could the impacts on Canada’s aviation sector be?

Expected impacts of the tariffs on drivers of air travel demand and supply

• The tariffs will lead to a slowing or reversal of economic growth in Canada and the United States in 2025 resulting in a decrease in demand for air travel across all travel sectors. Canada may enter a recession in 2025.
  • Depreciation of Canadian Dollar expected to cause a net loss in Transborder passenger traffic and result in higher costs for Canada’s airlines.
  • Cost and access to parts as well as new deliveries of US-manufactured aircraft may lead to supply constraints in the short- to medium-term.
  • Travel intentions by Canadians to the United States are expected to be reduced beyond macroeconomic effects reducing demand. Some Canadian travellers may substitute with trips in Canada and to Other International destinations.
  • Travel demand and capacity to the US expected to see a more immediate negative reaction. Effects on Domestic and Other International travel likely to lag behind but be felt in the Fall of 2025 and into 2026.

Potential macroeconomic impacts have been well described by major financial institutions and the Bank of Canada, providing a basis for our projections of impacts on Canadian air travel demand. All sectors of travel – Domestic, Transborder, and Other International – are expected to be impacted as the tariffs lead to a broad-based reduction in economic activity and tightening of household budgets leaving less money on the table for air travel. Slowdowns in business activities and reductions in employment will also impact business travel demand, which has already been changed substantially since the start of the COVID-19 pandemic.

Beyond these economic factors, we believe that there is likely to be some behavioural changes in Canadian travel intentions to the United States. We conceptualize this as a Canadian version of ‘flight shaming’ where some Canadian travellers choose not to travel to the US beyond those impacts estimated from economic factors on demand. This is assumed to be most prominent in the first two years of tariffs, but slowly wane over time – though never fully recover to zero effect versus the baseline forecast.

Here we present two possible scenarios for the Canadian aviation sector. First is a “Short Tariff” scenario in which the tariffs only last until the end of the 2025Q2. Transborder traffic is most impacted but the lingering damage to Canada’s economic growth in 2025 leads to this short tariff scenario not returning to pre-tariff baseline outlooks by 2028. The second scenario is a “Long Tariff” one in which tariffs remain in place until 2028 and beyond. Even with a change of administration in 2028/29 in the US, tariffs tend to be sticky and there is a real possibility that tariffs in some form may remain in place over the long run between the US and Canada.

In our scenarios, Transborder passenger traffic could be -27% below baseline projections by the end of 2028 in the Long Tariff scenario, which is barely recovering to 2019 pre-COVID levels. Even in the Short Tariff scenario, Transborder passenger volumes remain below baseline projections and the impacts of slower economic growth in the short-term are projected to have longer lasting effects on demand.

On a Canadian air sector aggregate basis, total passenger traffic in Canada could be -10% lower in 2028 than in the baseline scenario. The lasting negative impacts on economic growth in both Canada and the US cast a long shadow on Canada’s aviation sector.

Finally, we observe that the impacts of the tariffs may vary greatly from airport to airport and market to market. Medium sized and regional airports in Canada with predominantly Canadian outbound leisure demand to the US could see their Transborder demand and capacity hit much more than Canada’s large hub airports and metropolitan markets. Communities with industries that are particularly hard hit by the tariffs could see additional decreases in demand, while markets with a high proportion of US inbound travellers could see an influx of demand as Americans travellers take advantage of the cheap Canadian Dollar. 

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Want to continue the discussion? Reach out to Christopher Greer, Senior Manager Air Traffic Forecasting at chris.greer@intervistas.com