Trade Tensions Send Air Canada’s US Bookings into a Tailspin—What Investors Need to Know

The Canada-US trade relationship has long been a pillar of North American economic stability, but 2025 has brought a seismic shift. Air Canada’s recent warning of a “low teens” decline in US-bound bookings—driven by escalating trade disputes, currency volatility, and geopolitical rhetoric—paints a stark picture for investors. This article dissects the root causes, financial implications, and strategic moves reshaping the airline’s trajectory, while highlighting risks and opportunities for shareholders.

The Perfect Storm: Trade Wars and Travel Declines

Air Canada’s Q1 2025 results revealed a 10-13% drop in US-bound bookings, with CEO Calin Rovinescu citing “trade uncertainties” as a primary culprit. The broader context? A 70% year-over-year collapse in cross-border passenger demand, as reported by flight analytics firm OAG. This plunge stems from a toxic mix of factors:

1. Trade Tariffs and Retaliation: US tariffs on Canadian aluminum, lumber, and dairy products—alongside Canada’s retaliatory measures—have strained bilateral relations. President Trump’s provocative rhetoric about Canada becoming the US’s “51st state” has further inflamed nationalist sentiment, prompting Canadians to boycott US goods and destinations.
2. Currency Devaluation: A weaker Canadian dollar (CAD) has made US travel more expensive for Canadians. The CAD has lost 8% against the US dollar year-to-date, exacerbating sticker shock for discretionary travel.
3. Geopolitical Backlash: Canadian consumers are channeling anti-US sentiment into spending shifts. The Liquor Control Board of Ontario’s removal of all US-made alcohol and a 40% drop in US vacation bookings at agencies like Flight Centre underscore the cultural and economic divide.

Financial Fallout and Strategic Adjustments

Air Canada’s Q1 results reflect the strain:
- Revenue: $5.20 billion, a slight decline from prior-year levels.
- Net Loss: $102 million (adjusted for one-time items, it outperformed expectations).
- Profit Forecast: Trimmed to $3.2–3.6 billion for 2025, down from earlier estimates.

To mitigate losses, Air Canada has slashed US leisure route capacity by 10%, cutting flights to Florida, Las Vegas, and Arizona. Capacity on Canada-US routes dropped 3.5% during peak summer months, with 320,000 fewer seats offered through October. Meanwhile, the airline is pivoting to international markets:
- Europe: New routes like Montreal-Edinburgh.
- Pacific: Expanded services to the Philippines.
- Latin America: Added flights to Brazil and Mexico.

Competitors like Flair Airlines have followed suit, canceling routes such as Calgary-Las Vegas, citing unprofitability. Even US carriers like United and Delta face their own crises: United retired 21 older aircraft, while Delta warned of diminished demand, with US federal agency bookings plunging 50%.

The Broader Economic Ripple Effect

The decline in cross-border travel is no isolated event. A 10% drop in Canadian tourists could cost the US economy $2.1 billion and 14,000 jobs, per the National Tour Association. Canadian travelers are redirecting spending to domestic and non-US destinations—Mexico, the Caribbean, Japan, and Australia—while businesses across industries grapple with trade-related uncertainty. The Ontario Chamber of Commerce has urged policymakers to address competitiveness concerns, highlighting stalled investments and hiring.

What Investors Should Watch

1. Trade Negotiations: A resolution to tariffs or a de-escalation in rhetoric could reverse the booking slump. Monitor developments in US-Canada trade talks.
2. Currency Fluctuations: A stronger CAD would ease travel costs for Canadians, potentially boosting demand.
3. Route Diversification: Air Canada’s shift to international markets may offer long-term growth, but execution risks remain.
4. Competitor Moves: Airlines like WestJet and Porter Airlines could capitalize on niche markets if Air Canada’s restructuring creates gaps.

Conclusion: Navigating Uncertainty with Caution

Air Canada’s struggles highlight a fragile North American aviation sector. With US bookings down 10-13%, capacity cuts, and a $3.2–3.6 billion profit forecast, investors must weigh short-term risks against long-term resilience. The airline’s strategic pivot to international routes—bolstered by its new Boeing 737 Max placements and Pacific expansions—offers hope, but success hinges on stabilizing trade relations.

Crucially, the data paints a clear picture:
- A 70% collapse in cross-border traffic suggests this is more than a cyclical dip—it’s a structural shift in traveler behavior.
- Airlines’ profit warnings and capacity reductions indicate a prolonged downturn, with no quick rebound in sight.
- Investors should favor defensive positions until trade tensions ease, while tracking Air Canada’s ability to monetize its new routes.

For now, the skies over Canada remain cloudy.