Every year, Peter Spee and his family, together with several other families in West Vancouver, book a communal vacation trip. This summer, Mr. Spee and his friends were all set to rent houses along the Columbia river in Oregon.
But then they looked at the exchange rate between the U.S. and Canadian dollars. It was going to cost about $1.45 for each U.S. dollar, so they cancelled the plans and figured they’d stay in Canada instead. Now, the group will be renting chalets along the Athabaska River near Jasper, Alta., heading there in August for a domestic holiday.
The decision to vacation in Canada “was absolutely directly related to the exchange rate,” said Mr. Spee, who works as a risk manager for a small investment company. “We had a Google Hangout conversation about three weeks ago and I said things are expensive [in Oregon]. My friends said we should reconsider the Oregon option.”
Those kinds of decisions are being duplicated in thousands of households across the country, as Canadians balk at travelling south to where their spending power has shrunk, opting instead to stay in Canada. At the same time, the low Canadian dollar – along with a strengthening U.S. economy and low gas prices – is providing a strong incentive for Americans to come here.
As a result, the tourism sector is emerging as one of Canada’s economic bright spots at a time when overall growth has been sluggish, at best. Tourism operators across the country say they are benefiting from Canadians who’ve decided a “staycation” is more economic this year and Americans coming north to spend their valuable U.S. dollars.
Still, there are a few dark clouds within the sunny tourism picture. Business travel – especially in oil-producing provinces – is down, and the costs of promoting Canada in the United States have jumped sharply because of the exchange rate.
But, over all, the low dollar is a boon to the tourism sector, especially on the domestic travel front, which makes up 80 per cent of travel spending in Canada.
Indeed, tourism’s economic growth has considerably outpaced that of the rest of the economy. In the third quarter of 2015 (the latest data available), gross domestic product in the tourism industry was up 2.8 per cent year over year; the overall economy was up 1.2 per cent. Tourism’s direct contribution to total GDP hit an 11-year high of 1.94 per cent in the quarter, up from 1.88 per cent when the Canadian dollar was north of 90 cents (U.S.) in 2014.
While 1.94 per cent might not sound like a lot, that’s bigger than transportation manufacturing, bigger than agricultural production, bigger than forest products, bigger than mining. And when all the travel and tourism spin-off and support business is added in, the contribution to GDP is as high as 8 per cent.
However, that strong growth in the travel sector has yet to translate into a significant increase in jobs. Tourism-related employment was up about 10,000, or a modest 1.5 per cent, in the first nine months of 2015. And year-end employment data suggest that some key tourism-related sectors didn’t experience any job growth at all last year. Employment in the accommodations and food services sector was down 31,000 from the end of 2014, while the information, culture and recreation sector (which includes things such as casinos, theme parks, museums, sports events and performing arts) shed 7,000 jobs.
Still, Toronto-Dominion Bank analysis projects that the cumulative direct economic boost to the Canadian economy, because of travel spending related to the exchange rate, will reach $4-billion (Canadian) to $5-billion in the 2015-16 period.
The Conference Board of Canada says the low dollar, and low gas prices, prompted Canadians to make 600,000 more domestic pleasure trips in 2015. Overnight travel by Americans to Canada also increased by about 600,000 in 2015 because of the exchange rate, low gas prices and a healthy U.S. economy, the research organization says.
In general, Conference Board associate director Greg Hermus said, U.S. travel to Canada rises 5 per cent for each 10-per-cent decline in the Canadian dollar. That same decline in the dollar boosts domestic pleasure travel by 1.5 per cent.
On the ground, many individual travel operators say the exchange rate is almost entirely good news and is setting the stage for what could be a spectacular year in 2016.
“There is going to be this abundance of travellers wanting to book this summer in Canada,” said Sue Kaffka, vice-president of sales and marketing at Capilano Group, which owns the Capilano Suspension Bridge near Vancouver. “It is going to be the locals staying in the country and the Americans coming in and getting the great deals.”
At the Stratford Festival in Stratford, Ont., executive director Anita Gaffney said attendance is increasing both among Canadians, and Americans crossing the border. “Last year, there was a very nice increase among domestic visitors … and we expect we will have that again,” she said. There was also a “nice lift” of American numbers in 2015, and “we are seeing some positive signals at our box office” for the 2016 theatre season.
Ty Speer, chief executive officer of Tourism Vancouver, notes that the dollar has fallen sharply only in the past few months, so it is still hard to quantify its full impact. For American travellers, the health of the U.S. economy and their own financial situations are far bigger factors than the level of the loonie, he said.
Over all, Mr. Speer said, the quality and level of interest in a destination is more important than the exchange rate. Many Americans are unaware of the rate before they get to Canada. It is more of “a pleasant surprise” when they get here, he said.
As for Canadians – who are far more aware of the cost of buying U.S. dollars and the subsequent expense of travelling south of the border – “absolutely, the exchange rate will give a lot of people a bit of a reason to choose a Canadian destination for their holiday in 2016,” Mr. Speer said. He also notes that the vast majority of visitors to Canadian cities are Canadians.
If there is one province where the state of the travel business is more worrisome, it’s Alberta. Business travel has fallen with the slump in the oil sector, said Royce Chwin, chief executive officer of Travel Alberta. The biggest dent is in “crew travel” – the spending by resource workers as they move about the province. This mainly hurts rural areas and smaller municipalities.
A sign of the business travel slump: In January, WestJet suspended some scheduled flights out of Calgary and Edmonton because of decreased demand from people working in the energy sector. Tourism occupancy rates also fell sharply across the province in the last few months of 2015.
However, leisure travel in Alberta has been far more resilient, Mr. Chwin said, thanks to more domestic and U.S. visits to the big attractions such as the Rockies, the Calgary Stampede and The Badlands. Now, Travel Alberta is trying to use those big draws as “door openers” to get travellers to go further afield and spend money in smaller centres.
It is not clear whether stronger leisure travel will offset the business travel losses, he said, but “as long as this economy, from an energy standpoint, continues to bump along [weakly], it is going to be a drain.”
One significant downside to the rise of the U.S. dollar is the higher cost of promoting Canada in the United States. It is crucial to raise awareness of Canadian travel destinations south of the border, but a big chunk of advertising spending has vaporized, said Rob Taylor, vice-president of the Tourism Industry Association of Canada. “A minimum of 30 per cent of [any marketing budget] is lost to the exchange rate.”
Last year, the federal government allotted $30-million over three years to promote Canada in the United States, in conjunction with matching money invested by provinces, cities and private sector tourism players. That will now not go nearly as far, Mr. Taylor said, at a time when it is particularly important to reach Americans who are not close to the border or who have not been to Canada before, and thus will not be aware of the lower costs of travelling here.
Ottawa’s cash infusion for U.S. marketing came three years after the Conservative government virtually abandoned the promotion of Canadian leisure travel in the United States. In 2012, when the Canadian dollar was much stronger, tourism marketing through the Crown agency Destination Canada was shifted to high-growth developing markets in Asia and elsewhere.
Now, with the exchange rate in Canada’s favour and the U.S. economy stronger, there’s a recognition by industry and government that there is a need to actively promote travel to Canada in a country that provides the vast majority of our out-of-country tourists. Indeed, of the 16.6 million overnight trips to Canada in the first 11 months of 2015, 11.6 million were made by Americans.
If more Americans recognize the value of their dollars in Canada, and Canadians continue to stay home, 2016 could be a banner year, said Ms. Kaffka, of the Capilano Group. “This is going to be great summer,” she said.
Ben Nelms for The Globe and Mail
Capilano Suspension Bridge
The owners of the Capilano Suspension Bridge – a major tourist attraction on the outskirts of Vancouver – were curious to find out about the impact of the shrinking Canadian dollar, so they conducted “exit interviews” with visitors last summer. “We were quite shocked,” said Capilano Group vice-president of sales and marketing Sue Kaffka, because many Americans said they were unaware of the value of their currency before they headed off on their vacation to Canada.
In July and August, “70 per cent of the Americans we talked to had no idea about the exchange rate prior to arriving in Vancouver,” she said. “They found out about the rate as they were travelling around and buying things. It was a happy surprise.”
One reason for that, Ms. Kaffka said, is that during the summer more than a quarter of the visitors to the bridge are U.S. cruise ship passengers en route to Alaska. Many of them live nowhere near the border, so they pay zero attention to the level of the Canadian dollar.
But there is an increasing awareness among Americans of the good value they get in Canada, and when that is coupled with more Canadians staying home, this year’s prospects are excellent, she said.
Indeed, Capilano Group, which also owns Moraine Lake Lodge and Cathedral Mountain Lodge in the Rockies, has bookings that are “way ahead of our normal pace,” Ms. Kaffka said. “We are the happy story in the Canadian economy right now.”
The only downside from the low Canadian dollar is that any supplies bought in the U.S. cost more, and when the Capilano sales team travels to shows in the United States, it is significantly more expensive.
The Rocky Mountaineer tourist train, which runs through the spectacular mountains of Western Canada, has been bringing in customers from around the globe for 26 years.
The expensive trip attracts many “long-haul” customers from places such as Australia, who often combine it with a trip to Alaska, said Karen Hardie, vice-president of global sales. Numbers from Britain are also increasing, she said, partly because the Canadian dollar has dropped against the pound and because of increased airline capacity across the Atlantic.
Still, Ms. Hardie said, American visitors make up the biggest source of foreign customers and the weak Canadian dollar is reinforcing this. It is also keeping some Canadians at home, boosting domestic sales.
Over all, however, exchange rates are not crucial factors in enticing visitors to take the Rocky Mountaineer trips, which range in cost from $2,000 for a three-night trip to up to $8,000 for some longer journeys. “This is an aspirational trip,” Ms. Hardie said, “It is on the list of things that people want to do … [so] there isn’t really a great price sensitivity around that. It is something they have been planning for years.”
If the exchange rate helps their money go farther when visitors are in Canada, that is looked at as a bonus, she said.
For this coming season, Rocky Mountaineer is expecting double-digit growth in the number of customers for the fifth year in a row, and has extended its “shoulder” season in April and October.
As for increased marketing costs, Ms. Hardie said advertising will not be affected by movements in exchange rates. “As a global company, we deal with different currencies all the time. So while we are always really mindful of it, it is just one of the costs of doing business.”
The Stratford Festival
At Ontario’s Stratford Festival, there was a “nice increase” in the number of domestic ticket buyers in 2015 and “we expect to have that again” because many Canadians will decide to stay in the country this year, executive director Anita Gaffney said.
With roughly 20 per cent of festival visitors currently coming from the United States, the exchange rate should also have an impact on cross-border traffic. Twenty years of data show a significant correlation, Ms. Gaffney said. “When the Canadian dollar is weak, we see a higher level of attendance from our U.S. visitors.”
There is a bit of a delay, however. “It seems to take a few years to see some significant increase,” she said. Part of that may be that Americans are not exposed to the exchange rate story on their news – the way Canadians are almost every day – and it might only be after a visit here that the dollar draws them, and their friends, back across the border.
There was already a lift in the 2015 season, and while it is early days for this summer’s ticket sales, “we are seeing some positive signals at our box office,” Ms. Gaffney said. Many U.S. visitors drive to the festival from Michigan, Ohio and New York State.
Stratford uses the exchange rate in its U.S. advertising campaigns, although it is not the prime selling feature. The message about value “is a nice addition,” she said. “It helps, but you can’t rely on it forever.”
The downside of the exchange rate is the additional marketing expense in the United States, but advertising there is so crucial that Stratford will shift money from elsewhere to maintain the impact, Ms. Gaffney said. “We recognize that the dollar is getting us less, but we still need to have the same kind of presence, if not more.”
Kevin Van Paassen/The Globe and Mail
The number of Americans coming to Canada’s largest city has been increasing for five years, said Andrew Weir, executive vice-president of Tourism Toronto, and the exchange rate should help draw even more.
The lower cost of gas is also helping for those who drive to Toronto. But the dollar, low gas prices and a strong U.S. economy are not enough to get people to go anywhere, Mr. Weir said. “No matter what the cost is, people have to want to experience the destination.” There is a danger in painting a tourist location as cheap, he said. Ideally, the message that tourist promoters need to get to Americans is “not that ‘your trip is cheaper,’ it is ‘now you can do even more when you are there.’”
Domestic visitors to Toronto still far outnumber Americans. The city drew a record 14 million overnight visitors in 2015, with 2.5 million from the United States, and 1.75 million from overseas. This weekend’s NBA all-star game and the coming World Cup of Hockey and the Grey Cup game will help keep numbers up in 2016.
One sector of the Canadian travel business that could really gain from the exchange rate is the U.S. convention and meeting business, Mr. Weir said. When significant overhead costs – such as room rentals and staging – are 30 per cent less than at comparable U.S. locations, that can save an organization substantial sums of money.
One worry in the current environment is that Canadian consumer and business confidence could begin to suffer if the dollar and oil prices stay low. That could make a dent in corporate travel – a key component of the sector, especially in Canada’s financial hub.
At Mont-Tremblant, the famed Quebec ski village, the currency-related tourism boost has been sidetracked somewhat by an even more powerful force for the ski business: The weather.
An unseasonably warm and snow-starved season has tempered enthusiasm among ski travellers. Station Mont Tremblant, the Intrawest-owned operator of the ski resort (as well as the golf course in the summer and many of the accommodations in the village), relied heavily on artificial-snow-making equipment to keep the runs open while waiting for more of the treasured natural powder to fall. But now, “winter is here!” enthused Station Mont Tremblant vice-president of sales and marketing communications Annique Aird – and so, too, is the boon from the weak loonie.
“We can feel there are more Americans skiing at the resort,” she said. Numbers are also up from Quebeckers and Ontarians who are staying in Canada rather than looking to resorts in nearby Vermont that are usually popular destinations for eastern Canadian ski enthusiasts, she added.
Quebec’s ski industry hasn’t been shy about putting the weak loonie front and centre in its efforts to lure U.S. travellers. The theme “Get more for your US dollar” is featured prominently in the industry’s U.S. advertising this year, with ads illustrating the savings U.S. tourists can enjoy through the currency conversion.
“It does make a big difference,” she said. “That’s why the advertising is really more in your face, in terms of ‘Here’s what your [U.S.] dollar’s worth.’”
Prince Edward Island
Long-time Summerside hotel manager Kevin Mouflier, the new chief executive officer of the Tourism Industry Association of Prince Edward Island (TIAPEI), said the tourism business has been hopping in PEI amid the weak dollar over the past year – and it’s not all about the lush province’s lure as a golf destination.
“Our focus now is on culinary and culture, which is a big draw; we’re focusing on the ‘Food Island’ theme this year,” he said. He noted that the weaker currency has been enticing growing numbers of U.S. visitors via motor coach tours and cruise ships.
TIAPEI oversees the Atlantic Canada Tourism Partnership, a joint marketing body of Canada’s four Atlantic provinces, which is in the midst of a three-year, $20-million campaign to market the region to tourists in New England and the midwestern U.S., as well as Britain. He said the currency is “definitely a huge opportunity” in the U.S. marketing effort, although he acknowledged that there is a lack of awareness among Americans of the exchange rate.
Still, he said, the Internet is helping spread the word – due to the changing way that many tourists are using technology to shop for trips.
“A lot of it is done online now, through sites like Booking.com and Expedia. The translation of funds shows right there,” he said. “That’s where it’s an opportunity to promote how far their [U.S.] dollar can go.”
TIAPEI has a link to a currency converter on the main page of its own website to help smaller operators show U.S. customers how much they’re saving on the exchange rate. “They can tell them that their dollar is worth almost 50 per cent more and hopefully entice them to stay an extra night or two,” he said.
How Statscan measures the worth of tourism
How do you know if the person who just bought that restaurant meal is from halfway around the block, or halfway around the world?
That’s the challenge of trying to calculate tourism’s contribution to the Canadian economy.
Many things that a traveller might spend money on – food, for instance, or local transportation – are things local residents consume every day, too. It’s impossible to separate the resident from the tourist, the Canadian from the foreigner, or the business from the pleasure, just by glancing at sales statistics.
Statistics Canada relies on a combination of surveys and what amounts to a census of foreign visitors to try to filter out how much spending in Canada is coming from travellers.
When Statscan contacts Canadians for its monthly Labour Force Survey, it also conducts a separate survey on asking them about their recent travel. The Travel Survey of Residents of Canada gathers information on Canadians’ trips within Canada in the past month, including asking participants to estimate how much they spent and what they spent it on.
Any spending during an out-of-town trip more than 40 kilometres from home is fair game; trips shorter than that aren’t considered tourism.
That means that the increasingly popular notion of the “staycation” – where people take day trips within their own city to see the local attractions – isn’t counted.
To help Statscan get a measure of foreign tourism in Canada, the Canada Border Services Agency provides a count of all foreign travellers entering the country. It also hands out information cards to foreign visitors, asking them to complete an online questionnaire on their travel and spending within Canada, and submit it to Statscan. In addition, Statscan staff interview foreign travellers in five major Canadian airports, surveying them while they await their departing flights.
Statscan extrapolates the travel and spending trends gathered from the domestic and foreign surveys to estimate overall tourism activity across the population – both the Canadian population and the count of foreign tourists it gets from Canada Border Services.
Statscan makes no attempt to distinguish between business and pleasure travel in its tourism statistics. It does exclude travel and related spending for medical and education purposes, and by transportation crews, but otherwise it treats all travel as tourism. While this makes a certain amount of sense – regardless of the reason for the trip, travellers are consuming many of the same things – it’s an important distinction to travel-related businesses trying to cater to clientele with very different motivations for consuming their goods and services. In Alberta, for instance, the oil slump has dramatically eroded business travel, but the falling dollar has sparked a surge in pleasure tourism – to some degree offsetting, but these two types of travellers tend toward different parts of the province.
One curious note: Tourism by foreign visitors in Canada is considered a Canadian export. While that may be counterintuitive – all the activity takes place within our borders – it shares the characteristic of all exports that it involves non-Canadians buying Canadian currency in order to purchase Canadian products (in this case, tourism services). So while the Rocky Mountains don’t actually go anywhere, we’re exporting the Canadian experience for foreigners to take home with them.
Indeed, tourism is close to the perfect export to capitalize on the weak Canadian dollar, because it has very few offsetting costs from foreign inputs in making its product (no overseas parts are involved in Niagara Falls). Third-quarter tourism exports were up a brisk 5.5 per cent from a year earlier.