The Outlook for Canada’s Transportation Sector 2020-2040 (Post-COVID-19)

Executive summary

This report has three main objectives. The first is to evaluate how the sector has been performing prior to the pandemic and how the pandemic has impacted it. The second is to provide a better understanding of the macroeconomic factors that are affecting the transportation sector. Thirdly, this report aims to quantify and describe the outlook for the overall transportation sector as well as each of its seven component industries over the medium-term.

To achieve these objectives, we generate a forecast that explicitly calculates estimates for prices, revenues, expenditures, investment, profits, real GDP, and employment for the transportation sector and its component industries. This forecast is based on The Conference Board of Canada’s long-term economic outlook for the Canadian economy, which was finalized in October 2020. The forecast period covered is 2020 to 2040. However, the analysis in this report will focus more heavily on the medium-term outlook through 2024.

Our analysis highlights that the transportation sector enjoyed strong economic growth prior to the coronavirus pandemic. Between 2010 and 2019, real GDP in the industry grew by an average of 3.7 per cent per year, almost double the 2.2 per cent rate of the overall Canadian economy. Over this period, five of the seven sub-segments in the sector have outgrown the Canadian economy. Air transportation stands out having seen GDP expand by 7.8 per cent a year, as the industry serviced a steadily increasing number of passengers. Water transportation has grown slowest of all the sub-segments with GDP growing by 0.5 per cent per year over the same period.

Other indicators also highlight the sector’s expansion over the decade preceding COVID-19. For example, the sector added 180,000 jobs between 2009 and 2019. Furthermore, the sector also posted a record pre-tax profit of $18.7 billion in 2019, which was well above its ten-year average of $12.9 billion.

Unfortunately, the COVID-19 pandemic derailed the sector’s growth trajectory. We estimate that transportation sector GDP will contract by 21 per cent in 2020, with the sector shedding an estimated 98,300, or 12% of jobs, as a result. The impact of the pandemic has been varied across the various segments with air transportation and transit and ground transportation being the most affected, being heavily dependent on passenger numbers. The nature of the pandemic has meant that there has been a fear of shared spaces along with multiple lockdowns forcing transportation services such as air transportation to come to an almost stand still.

Coming out of the economic slowdown triggered by the pandemic is heavily dependent on the vaccine roll out, vaccine effectiveness and the degree to which any mutations of the virus can be addressed within the current health approach to the pandemic. We anticipate that as vaccines are made widely available, both in Canada, and globally, consumer and business confidence, investment, and trade, will improve. This is anticipated to generate an upswing in freight transportation that benefits the sector. At the same time, we expect the relaxing of restrictions on movement that come with the widespread vaccination of Canadians will kickstart the spending of a portion of the significant savings that households have amassed during COVID-19 pandemic. This is expected to start a meaningful recovery in public passenger travel.

Under the assumptions laid out above, the transportation sector will see economic activity rebound in 2021. However, it will take until late 2022 for GDP to return to pre-COVID levels, due to drawn out recoveries in air and transit and ground passenger transportation. The recovery in employment will be more fragile as some positions that were permanently laid off during COVID-19 are not rehired. Moreover, the sector continues to face headwinds to employment growth brought about by retiring baby boomers. All in all, employment is forecast to reach 786,000 by 2024, up from 725,900 in 2020.

In turn, the financial performance of the transportation sector is forecast to improve beyond 2020. Revenues will receive a boost from the recovery in air travel, rising from an estimated $144.6 billion in 2020 to $209.8 billion by 2024. Costs are also projected to rise in the forecast, although softer job growth and lower crude prices will limit gains. Against this backdrop, pre-tax profits are forecast to increase to $18.1 billion by 2024, after sliding to an estimated $4.6 billion in 2020. Margins will level off around 8.6 per cent through 2024—slightly below their pre-COVID levels.

Disclaimer

This report reflects the views of The Conference Board of Canada only and does not reflect the views or policies of Transport Canada. Neither Transport Canada, nor its employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy or completeness of any information contained in this report, or process described herein, and assumes no responsibility for anyone's use of the information. Transport Canada is not responsible for errors or omissions in this report and makes no representations as to the accuracy or completeness of the information.

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