Canadian Domestic Tourism: A Safe Harbor in Turbulent Waters?

The Canadian economy faces headwinds from trade disputes, inflationary pressures, and a fragile currency. Yet within this storm, one sector is poised to thrive: domestic tourism. A Conference Board of Canada analysis estimates that redirected travel spending could inject up to $8.8 billion into Canada's economy by 2025—a figure that could act as both a shield against trade war fallout and a catalyst for growth in inflation-sensitive sectors. For investors, this presents a compelling opportunity to capitalize on a structural shift toward homegrown leisure spending.

The Macro Backdrop: Trade Wars and the Inflation Dilemma

Canada's economy is caught in a vise of external pressures. U.S. tariffs, a weakening Canadian dollar (averaging 72 cents USD in early 2025), and stricter border policies have dampened cross-border travel. Canadians spent $26.6 billion on U.S. tourism in 2023, but that figure is now shrinking rapidly—April 2025 saw an 18.7% year-over-year decline in Canadian travelers returning from the U.S. Meanwhile, U.S. visitors to Canada are projected to drop by $1.5 billion in spending due to their own economic slowdowns.

This creates a unique opportunity: $10.3 billion in potential redirected spending could flow into Canadian tourism, though the net uplift is tempered to $8.8 billion after accounting for lost U.S. inbound revenue. The Conference Board identifies two scenarios shaping this outcome:

• Scenario 1 (Base Case): A gradual shift toward domestic tourism, driven by weak consumer confidence and currency headwinds, delivers the full $8.8 billion uplift.
• Scenario 2 (Worse-Case): Prolonged trade disputes and a deeper U.S. recession shrink the uplift to $6.2 billion, but domestic demand still outperforms cross-border travel.

The weak CAD makes U.S. travel cost-prohibitive, but it also keeps domestic prices competitive. While core inflation remains stubbornly above 2%, the Bank of Canada's rate cuts to 2.75% aim to boost spending without reigniting price pressures—a delicate balance favoring sectors with pricing power and inelastic demand, like tourism.

Sector-Specific Plays: Where to Invest in the Boom

The $8.8 billion uplift isn't evenly distributed. Investors should focus on three areas:

1. Hospitality REITs: Anchors of the Domestic Boom

Hotels and resorts will capture the bulk of redirected spending. The Conference Board notes that domestic leisure travelers spend 15-20% less per trip than international visitors, but higher volume compensates for lower margins. Look to REITs with exposure to regional tourism hubs, such as Choice Properties REIT (CPR.UN), which owns hotels and motels across Canada.

These REITs benefit from steady demand in scenic destinations like Banff or Niagara Falls, where travelers now opt for staycations over cross-border trips.

2. Travel Services: The Middlemen of the Shift

Companies enabling domestic travel—tour operators, car rentals, and activity providers—will see outsized gains. Groupe Dynamite (GD.TO), which operates Expedia Canada and travel agencies, stands to profit from rising domestic bookings. Meanwhile, airlines like Air Canada (AC.TO) could see stabilized passenger numbers as business travel to the U.S. declines but regional routes fill up.

The key is avoiding companies overly reliant on U.S. traffic and favoring those with diversified, domestic-facing revenue streams.

3. Consumer Discretionary: The Indirect Winners

Even sectors like retail and entertainment will benefit. Lululemon (LLL) and Canadian Tire (CTC.A.TO), for instance, cater to active travelers seeking outdoor gear or weekend getaways. Restaurants and entertainment venues in tourist-heavy areas will also see increased foot traffic.

Risks and the Case for Caution

While the upside is compelling, risks linger. A deeper U.S. recession could further reduce inbound tourism, and inflationary pressures might erode consumer purchasing power. The Bank of Canada's next rate move—whether to cut further or pause—will also influence spending behavior. Investors should pair exposure to tourism stocks with broader hedges, such as short positions on the USD/CAD currency pair or inflation-protected bonds.

Final Take: A Portfolio Anchor in a Volatile Market

Canadian domestic tourism is no fad—it's a structural shift fueled by trade tensions, currency dynamics, and changing traveler preferences. With the Conference Board's $8.8 billion uplift scenario as a baseline, investors should treat this sector as a buffer against broader economic volatility. Prioritize REITs with regional exposure, domestic travel enablers, and consumer discretionary firms with tourism ties.

The weak Canadian dollar and fading cross-border optimism are here to stay. For now, the Great Canadian Staycation isn't just a slogan—it's an investment thesis.