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Falling Canadian Dollar: How Does It Impact Travel in Canada?

Writer's picture: Shawn KoushaShawn Kousha
How does Canadian dollar drop in value will affect travel market in Canada?

The Canadian Dollar also known as Loonie has been sliding against the U.S. dollar for much of late 2024, hovering in the mid-0.70s range.


If recent trends hold, some experts warn it could even drop to around 0.65 USD in 2025.

This slide in value may sound alarming, but it brings both hurdles and openings for Canada's travel-related industries.

Below is a closer look at the factors behind the depreciation, how it affects airlines and tourism, and what to expect in the coming year.

 

What’s Driving the Dollar Down?


1.    Economic Performance and Employment Trends


Throughout 2024, the U.S. economy posted notable gains, expanding by about 2.5% in the fourth quarter. Unemployment south of the border dipped to 4.1% in December 2024, reflecting strong job growth and robust consumer spending.


Meanwhile, Canada’s real GDP inched up only 0.3% in the third quarter of 2024, building on modest 0.5% growth earlier in the year.

 

Adding to these concerns, the unemployment rate rose to 6.8% in November 2024, its highest point in several years. This contrast in economic health has nudged investors toward the American dollar, weakening the Canadian dollar in the process.

 

2.    Political and Trade Tensions


Canada’s political landscape turned uncertain when Prime Minister Justin Trudeau resigned in late 2024. The resulting leadership vacuum left financial markets uneasy, compounding investor concerns about Canada’s future direction.

 

Meanwhile, renewed tariff threats from President Trump have reignited fears of trade instability, putting further pressure on the Canadian dollar.

 

When political signals point to potential disruptions, currency markets tend to respond with caution, often favouring the U.S. dollar.

 

 

3.    Oil Price Fluctuations


Canada’s economy is closely tied to energy exports, which makes the loonie sensitive to changes in global oil prices. When oil values slip, so does Canada’s export revenue. This drop in earnings tends to drag down the currency, reinforcing the Canadian dollar’s longstanding reputation as a “petro-currency.”

 

How Airlines Are Feeling the Heat

 

1.    Rising Operational Costs


Most airlines in Canada shoulder hefty bills for fuel, aircraft maintenance, and leasing fees, all priced in U.S. dollars. With the Canadian dollar’s current weakness, these costs eat further into profits, prompting carriers to look for creative ways to trim expenses and hedge against currency risks.

 

2.    Opportunities for Low-Cost Carriers (LCCs)


Canada has historically been a tough market for low-cost carriers, partly due to higher operating costs and complex regulations. However, the economic pressures brought on by a weaker dollar may encourage more price-conscious travelers to book with discount airlines. LCCs that can keep fares down and offer streamlined services might find this an opportune moment to expand.

 

3.    New Revenue Streams for Legacy Airlines


Traditional airlines are rolling out extra fees and add-ons to cushion the blow from rising costs. Passengers may see more options like paid carry-on baggage, seat selection charges, and upgraded in-flight services. These ancillary revenues can help larger carriers maintain profitability when currency-related expenses climb.

 

Tourism Trends: In and out of Canada

 

1.    Canadian Dollar impact Inbound Travel


A cheaper Canadian dollar draws visitors looking to stretch their budgets.

In 2024, around 16.2 million U.S. travelers came to Canada, and signs point to even more arrivals in 2025 if the exchange rate remains favourable. Lower prices for accommodations, dining, and entertainment make destinations like Toronto, Vancouver, and Montreal especially appealing to Americans—and to travelers from other countries as well.

 

2.    Shifts in Outbound Tourism


On the flip side, Canadians are feeling the pinch when travelling abroad. Popular vacation spots such as the Dominican Republic, the Caribbean, and Cancún, Mexico, have become even more appealing for those seeking value for money. Although domestic tourism might benefit from some people choosing to stay within Canada, many are still opting for cheaper all-inclusive trips rather than higher-priced U.S. destinations.

 

Immigration Policy and the Travel Outlook


The Canadian government’s recent decision to cut immigration targets by about 20% starting in 2025 could affect the overall economy and the aviation industry. This change is likely to reduce passenger numbers on routes from regions like Asia and the Indian subcontinent, areas that have traditionally seen steady traffic from immigrants and their visiting relatives. A slowdown in this category of travel could place additional pressure on airlines already grappling with tighter margins due to the exchange rate.

 

Looking Ahead to 2025


As 2025 unfolds, Canada’s travel industry will need to stay on alert due to Canadian dollar impact.


Airlines will likely explore more cost-saving measures while also refining their pricing strategies to appeal to both domestic and international flyers.


Tour operators and local businesses that cater to inbound tourists could enjoy a welcome revenue boost, thanks to the more attractive exchange rate.


Yet the same currency imbalance complicates life for Canadians looking to explore beyond their own borders, and it raises operating costs for the very airlines trying to woo them.

Long-term success may hinge on whether Canada can stabilize its political climate, improve its economic performance, find a solution to deal with the new US administration and adapt to shifts in global oil prices.


All things considered; the travel sector faces a delicate balancing act in 2025.

While there are clear obstacles—such as higher expenses and stiffer competition—there are also real opportunities for those willing to innovate and respond to the changing preferences of budget-conscious travelers.


Anjuna Airline Solutions conducts regular market analysis for it's Airline partners, for more information you can contact us here.



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