Tourism in Canada in 2015

This year has been marked by the fall in oil price, the depreciation of our currency, and the contraction of our economy. Activities likely to benefit from this adverse situation are exports and tourism. Is it actually the case? I will focus here on tourism.

Over the first two quarters of this year, while the economy was contacting, the number of tourists entering Canada grew. The highest growth rates observed were in April, 5.96%, and May, 7.25%. Since June Canada has returned to growth and the number of tourists visiting our country started declining. In August, after three consecutive months of growth, the number of tourists who chose Canada as destination dropped by 4.64%.  

Total Number of Tourists Entering Canada, 1992:M1-2015:M8

Looking at the situation by province, the month of June was beneficial for Nova Scotia, Quebec, and Alberta which received respectively 21%, 9.5%, and 6.4% more entries. While the situation was adverse in July and August for most provinces, Ontario, Yukon, and Nunavut managed to attract more foreign visitors in July.

Share of non-resident tourists entering Canada by province, 1992:M1-2015:M8

Each month, Ontario receives about half of the non-resident tourists entering Canada, and British Columbia about one-quarter. This share is currently above seasonal averages in Quebec, Alberta, and British Columbia but that is not the case in the other provinces.

Along with the number of non-resident tourists entering Canada, the tourism GDP grew by .45% over the first two quarters of the year.

See data here. 

US Tourism in Canada

US travelers make up the vast majority of tourists visiting Canada.  After reaching a peak of 88 % in October 1985, the share of US travelers fell to the all-time low of 70.6 % in July, this year. The common border and the English language the two countries share, the reciprocity agreements, and the acceptance of the US dollar as means of payment explain in large the importance of the US tourism in Canada.

Figure 1: Total Number of Non-Resident Tourists and US Travelers Entering Canada, 1981:M1-2014:M7, Source: Statistics Canada

A growing proportion of US residents entering Canada travel by plane and more than half of them travel by car. A part from the geography, the culture, and the agreements between the two countries, there are economic factors that influence US residents in their decision to travel or not to Canada and in their choice of transport mode. Two of these factors are: the price of gasoline and the US dollar exchange rate.

The Price of Gasoline

The correlation between the consumer price index (CPI) of gasoline in the US and the number US travelers entering Canada by car is negative and high, -.61, more precisely. In the meantime, the correlation between the CPI of gasoline and the number of US travelers entering Canada by plane is of the opposite magnitude, .59. This means car users change their mind as the price of gasoline increases: some give up traveling to Canada whereas others switch transport mode. 

Figure 2: Number of US Residents Entering Canada by Car and by Plane, and CPI of Gasoline in the US, 1981:M1-2014:M7, Sources: Statistics Canada and Federal Reserve Bank

In 1986, when oil price collapsed due to superabundant non-OPEC production, the number of US travelers visiting Canada by car soared. Conversely, the rise in oil price since the 2008 economic crisis discouraged car use.

The Exchange Rate

US residents entering Canada by car seem to watch closely the evolution of the US dollar exchange rate and decide to travel when  the US dollar is high, i.e., when they can get more for their money in Canada. The correlation coefficient between the number of US visitors using cars and the exchange rate is .82. This is not at all the case for those visiting Canada by plane. 

Figure 3: Number of US Residents Entering Canada by Car and by Plane, and the US Dollar Exchange Rate in Canadian Dollars, 1981:M1-2014:M7, Source: Statistics Canada

The number of US travelers entering Canada by plane and exchange rate is uncorrelated. These travelers might either be people on business tours or people only chasing travel deals (ticket and accommodation) 

The Relative Performance of the Tourism Sector in Canada

The tourism sector in Canada is performing relatively well. The value added by this sector keeps increasing but its share in the gross domestic product (GDP) is declining. This comes from the fact that tourism GDP is growing slower than the economy as a whole. Economic factors likely to influence the performance of the tourism sector are the high oil price and a stronger Canadian dollar that make traveling to Canada expensive. 

Figure 1: Tourism GDP and its Share in the Entire Economy's GDP, Canada, 1986:Q1-2014:Q1, Source: Statistics Canada

Given the economic situation, some households are no longer traveling or are changing destinations and others are doing tourism differently like renting an apartment or a chalet instead of staying in a hotel. As a consequence, traditional tourism industries such as transportation, accommodation, and food and beverage have lost some market shares whereas the shares of other industries providing travel related services are increasing. 

Figure 2: Share of Various Industries in Tourism GDP, Canada, 1986:Q1-2014:Q1, Source: Statistics Canada

Following their loss of market shares, the shares of employment generated by the traditional tourism industries except the food and beverage industry have also fallen. 

Figure 3: Share of Employment Generated by Various Industries in the Tourism Sector, Canada, 1986:Q1-2014:Q1, Source: Statistics Canada

The third panel of the above figure shows that the share of employment generated by the food and beverage industry has been going up since the late 1990s. This upward trend is explained by the fact this industry does not exclusively depend on tourism as it also serves the local population. 

The big challenge of the tourism sector is now to reverse the declining trend in the number visitors to Canada made up essentially of US citizens.  

Figure 4: Total Number of Non-Resident Travelers and US Travelers, Canada, 1986:Q1-2014:Q2, Source: Statistics Canada