All The Inside Scoop On Canada Domestic Market Stability Amid Decline in US Transborder Demand, 2H2025 Critical for Airlines Now – Travel And Tour World

The Canadian airlines industry is in transition with carriers re-routing to respond to softer US transborder demand in part due to changes in US trade policies and tariffs. In response, Canadian airlines have re-directed part of their capacity back to the domestic Canadian market with mixed results. While hope remains for stable customer demand in the summer peak period within the Canadian domestic market, industry insiders are watching closely to determine if the re-routing will create a long-term imbalance in demand and supply.

Carriers such as Air Canada, WestJet, Porter Airlines, and Flair Airlines are each reacting to these changes in unique strategic manners. What this shift will lead to will play an integral role in the second half 2025 (2H2025) Canadian aerospace industry stability.

Canadian Airlines Adjust to Reduced US Demand

In early 2025, Canadian airlines were faced with a sudden drop in demand for US transborder routes, primarily driven by US tariff threats and growing discussions about Canada’s political status. The repercussions of these geopolitical tensions were felt across the transborder market, forcing Canadian airlines to pivot quickly. Air Canada, for example, reported a booking decline on point-to-point transborder routes, with some routes seeing declines in the low teens over the next six months.

In response, Air Canada, which had already diversified its network to buffer against these fluctuations, has refocused its efforts on domestic services. The airline reported that its domestic market remains stable, with projected passenger growth for the second and third quarters of 2025, although it expects its domestic capacity growth to stay in the single digits. This is indicative of the cautious optimism in Canada’s domestic market.

Data from CAPA – Centre for Aviation and OAG indicate that Canada’s overall domestic seat capacity is forecast to grow by 7% year-over-year for the week of July 21, 2025, reflecting a continued interest in domestic travel.

Porter Airlines and Domestic Market Demand

Porter Airlines, which had previously focused on US transborder routes using its growing Embraer 195-E2 fleet, also responded to the shift in demand by reallocating its capacity back into Canada. Porter has increased the share of domestic routes in its network, now accounting for 80% of its operations during the busy northern summer season, up from an earlier 75% forecast.

The airline’s strategy focuses on meeting the growing demand for domestic travel, particularly for cross-country flights. New routes, including Hamilton to Vancouver and Hamilton to Halifax, have been launched in response to this increased demand. Porter is also operating as the sole airline on several new route pairings, including Hamilton-Halifax and Ottawa-Victoria, making significant inroads into markets previously dominated by competitors.

Flair Airlines: Cautious Approach to Growth

Unlike larger carriers, Flair Airlines, a Canadian ultra-low-cost carrier (ULCC), has opted for a more cautious approach to growth in 2025. With a fleet of Boeing 737 aircraft, Flair operates nearly 88% of its frequencies domestically, the highest among Canada’s airlines. The ULCC’s CEO, Maciej Wilk, stated that the airline has no immediate plans to expand its fleet this year, but it has adjusted its schedule to reflect shifts in the transborder market.

Flair’s CEO expressed concerns about the long-term implications of the industry-wide reallocation of capacity. While the airline acknowledges the current shift in demand towards domestic flights, Wilk noted that this change doesn’t completely resolve the challenge, as all Canadian airlines are facing the same issue. He emphasized that the industry is waiting to see whether this shift will be temporary or whether it will continue into 2026 and beyond.

WestJet Focuses on Domestic Routes and European Expansion

WestJet Airlines, which also faced declining demand for US transborder routes, has responded by pulling back from certain US routes while expanding its domestic service. The airline is increasing capacity on transcontinental domestic routes, including new services between Winnipeg-St John’s and Halifax-Saskatoon. These domestic routes are expected to help feed WestJet’s European network, providing better connectivity to destinations such as Amsterdam, Paris, and London Gatwick.

WestJet’s adjustments reflect the airline’s focus on strengthening its domestic and international networks, while continuing to operate widebody aircraft like the Boeing 787-9 to key European hubs.

Canada’s Domestic Aviation Outlook for 2H2025

Looking ahead to the second half of 2025, Canadian airlines are optimistic about the stability of the domestic market. The current reallocation of capacity back into Canada is not expected to create a chaotic marketplace, as most airlines are adjusting cautiously to meet demand. However, industry players are mindful of potential supply-demand imbalances, especially if US transborder demand does not recover or if geopolitical issues continue to affect cross-border travel.

The 2H2025 period could be pivotal for Canada’s aviation sector, with airlines testing the long-term viability of shifting their focus from US routes to domestic operations. The results of these changes will become clearer as the summer travel season unfolds and airlines assess their ability to maintain profitability while adjusting to evolving demand patterns.

Conclusion

As the airlines in Canada navigate through an unpredictable environment with a decline in US transborder demand, their domestic markets are the place to expand. As Air Canada, Porter Airlines, WestJet, and Flair Airlines all cut back their operations, the months to come will decide if this action will lead to long-term stability or struggle within the Canadian travel sector. Airlines are still confident in the belief that the actions are short-term and will rebound to stable patterns in time, but repercussions of the shifts will trickle through the industry deep into 2026 and beyond.

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