Canadian airlines worry US trade war could dent 'shaky' transborder market

Airlines are watching closely for any sign of changing travel patterns between the U.S. and Canada after President Donald Trump's threat of steep tariffs on Canadian goods prompted outrage among denizens of the Great White North.

"Now is also the time to choose Canada," Canadian Prime Minister Justin Trudeau said in an address to the nation Feb. 2. "It might mean changing your summer vacation plans to stay here in Canada."

While Trump's tariffs were called off at the eleventh hour, they are only on hold for 30 days. That leaves the door open for further disruptions to U.S.-Canada travel.

That threat has sent shockwaves through the travel industry. The U.S. Travel Association warned that a 10% drop in Canadian visitors could result in as much as $2.1 billion in lost spending at American businesses.

"There's definitely softness the last couple of weeks," Frank Satusky, director of network strategy at Porter Airlines, said at the Routes Americas conference in Nassau, Bahamas, last week. "There's a lot of frustration in Canada."

Air Canada's vice president of planning and scheduling, Alexandre Lefèvre, described the transborder market as "shaky," adding that the airline does not see any "immediate slowdown" in travel demand.

Neither Air Canada nor Porter has any immediate plans to pull back on its U.S. schedule. The former has already unveiled new service to Jacksonville International Airport (JAX) this year and the latter to New York's LaGuardia Airport (LGA).

Any extended travel demand weakness, however, could prove challenging for airlines.

Air Canada is the largest airline in the market — and the most exposed to fluctuations in travel demand — with a nearly 43% share of the 9.3 million seats between the U.S. and Canada in the first quarter, schedule data from aviation analytics firm Cirium shows. Air Canada's share rises to 54% when including joint venture partner United Airlines; the two airlines coordinate schedules and fares on transborder routes.

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WestJet is the second largest in the market with a 17% share of seats, and Porter is fourth with a 9% share.

A representative of WestJet at Routes declined to comment.

Complicating the situation is the weak Canadian dollar relative to the U.S. currency. The decline inflates the cost of a trip for anyone exchanging the Canadian currency.

"The weak Canadian dollar is impacting demand," Lefèvre said. The airline has made some schedule "reductions on the margins" as a result of the currency situation.

To offset the foreign exchange challenge, airlines can sell more seats in the U.S. That's easy for American carriers that already primarily carry U.S. travelers on flights to Canada. The proposition is more challenging for Canadian airlines that cater primarily to their local market.

Air Canada, however, has a leg up on boosting U.S. sales. First, its partner United handles sales in the country, which gives Air Canada access to a broad and deep pool of travelers, both leisure and corporate. Second, the airline carries a significant number of Americans on its flights across the border and on to Europe and Asia via connections in Montreal, Toronto and Vancouver, British Columbia.

Air travel that begins in one country, involves a flight connection or stopover in another country and ends in a third country is called a "sixth-freedom" trip.

Air Canada is already the largest foreign airline in the U.S. with flights to 50 airports and, as Lefèvre said at Routes, it plans to add as many as 15 more American cities to its map in the next few years. That expansion is fueled by the airline's sixth-freedom strategy.

"We need to offer more connectivity," Lefèvre said. "We need to offer more dots on the map."

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