Summary

Canada sits on the world’s greatest collection of natural and cultural assets but captures a fraction of their economic potential. The problem is crossing the country’s vast landmass to reach places outside of large urban centers.

Canada has over 5,000 communities¹ spread over nearly 10 million square kilometers. But only 26 “essential” airports handle 94% of passenger traffic². Reaching most parts of the country is simply too difficult or too expensive to attempt. This disconnection costs the economy billions annually in lost opportunity. 

To achieve Canada’s potential we must become masters of all scales. This means building the physical and financial infrastructure that lets people, goods, and capital move freely between regions.

Iceland transformed its economy by becoming a transportation hub, turning Keflavík Airport into a bridge between continents. Canada can do the same on a continental scale, using regional air access and targeted capital reforms to unlock every part of the country from the Yukon to Nova Scotia. 

The leading indicator will be tourism. If tourism to Canada’s places of natural beauty and cultural richness booms then the routes will be established for trade to follow.

Target: Grow Canada’s tourism revenue from $130 billion³ to $250 billion within 5 years by connecting every major regional center through reliable air service.

Background and Motivation

Canada has a scale problem. The country possesses natural assets and scenic beauty that no other nation can match but it fails to capitalize on them. The population is scattered without the infrastructure needed to support flows of people, goods, and capital. 

To cross these large distances and ensure that every community is able to develop its economy requires accessible regional hubs with easy connections to other economic centres. But without convenient and affordable air travel or access to capital flows there is no way for hubs to develop as they otherwise would. 

Across the country only 26 “essential” airports handle 94% of all passenger traffic and only 89 airports have any kind of security screening at all⁴. This creates bottlenecks that choke regional development. In the most rural communities the problem is even worse. Transport Canada identifies 182 remote communities accessible only by air⁵, but many of these northern airports lack instrument approaches and can operate only in perfect weather. When storms hit or equipment fails, entire communities can get cut off from the national economy.

At the same time rural communities also have fewer options for commercial lending. Only 45% of rural SMEs get financing from domestic chartered banks compared to 70% for urban firms⁶. Instead they rely more on credit unions and government institutions which are usually less sophisticated and unable to support the most innovative business plans.

This lack of infrastructure for people, goods and capital restricts development and threatens national unity. Nowhere are the problems that stem from this lack of connection clearer than in tourism.

Today, Canada is not in the top 15 countries for international tourist trips, lagging countries like Mexico and Denmark despite having vastly more areas of natural beauty. Overall, in 2022 direct travel and tourism activities together made up only ~1.4% of Canada’s GDP, versus ~2.5% for a comparable destination like Australia and ~4% as a global average⁷. The reason is simply that it is too hard to get to Canada’s tourist destinations.

For example, from a major hub like New York City, it takes under 5 hours to fly to Cancún, Mexico—a spring break beach and nature destination. By contrast, it takes 9 hours (including multiple layovers) to get to Gros Morne National Park, a UNESCO World Heritage Site, in Newfoundland—even though Gros Morne is physically closer to New York than Cancún is.

The difference? Cancún is served by frequent direct flights from most major U.S. cities, while reaching Gros Morne requires first flying to one of Canada’s few major hubs, then taking a smaller, less frequent connecting flight.

This lack of connection causes more problems than just low numbers of tourist trips. Without accessible regional hubs huge parts of Canada are unable to get goods to market and so face massive friction when it comes to developing their other natural assets or local economies. In Newfoundland near Gros Morne this could include fish and seafood, metals, rare earth and more, let alone services, and manufacturing that could be developed in the region. 

Here’s how the system works today: A tourism operator in Jasper wants to expand guided wilderness tours. But, international visitors struggle to reach the region because most flights only take you as far as Vancouver or Calgary meaning long drives, poor timing and high costs. The operator also can’t get commercial financing because local banks don’t understand the seasonal tourism business. The business stays small, visitors go elsewhere, and the economic multiplier effect never materializes.

Here’s how it should work: Regional airports offer reliable connections to international gateways with coordinated schedules. Simplified lending rules let local banks finance tourism operators using seasonal cash flow models. Fewer restrictions mean it is economic for the regional hubs to operate flights. As a result visitors can reach Jasper directly, stay longer, spend more, and create jobs that keep young people in the community.

This is a proven model. Iceland, a country with roughly one one hundredth the land mass and population of Canada transformed itself through building exactly this kind of connectivity. The country built Keflavík Airport into a transatlantic hub, handling 8.3 million passengers in 2024 with 28 airlines serving 98 destinations⁸. This turned Iceland into a bridge between North America and Europe with transfer passengers making up over a quarter of traffic⁹ but it also boosted tourism by making travel to Iceland cheap and easy. In addition the country upgraded the airport at Akureyri (AEY) - an otherwise inaccessible town of just 20,000 in the North of the country - to allow for seasonal services so that up to 500,000 tourists a year could reach Iceland’s other natural attractions¹⁰.

As a result of these changes tourism reached 8.8% of GDP in 2023. More importantly other exports followed. Services exports hit 939 billion Icelandic króna¹¹ (~$10B CAD), and aquaculture exports grew from less than 2,000 tonnes in 2010 to 43,000 tonnes by 2024[¹²](https://px.hagstofa.is/pxen/pxweb/en/Atvinnuvegir/Atvinnuvegir sjavarutvegur fiskeldi/SJA07003.px/table/tableViewLayout2/) making use of the increased connectivity.

To see the same kind of dramatic success that Iceland has achieved Canada doesn’t need to expend massive resources to create infrastructure or shift markets. It just needs to unblock the development that could happen naturally.

This means making regional economic development a core mandate for our Transport Ministry, reforming airport regulations to prioritize building regional connectivity, simplifying the rules for operating regional airports to ensure profitability and encouraging commercial lending for more remote businesses. With these changes Canada can become a master of scale and build the connective tissue needed to reach its economic potential.

What Must Be Done

The government needs to treat regional connectivity as economic infrastructure, not transportation luxury. This doesn’t mean more investment but simply letting Canada’s regional centres build the infrastructure and access the capital they need to flourish. 

Make economic development core to the mandate for the Minister of Transport and the Canadian Transportation Agency. The CTA is already “an economic regulator of modes of transportation under federal jurisdiction”¹³but focuses primarily on competition and safety without consideration of regional development outcomes. The Minister and the CTA must be given mandates that include prioritizing transportation infrastructure to unblock regional economic potential. Simultaneously, direct the CTA to consider economic impact assessments as part of all licensing and regulatory decisions affecting regional connectivity, ensuring policy direction supports underserved communities and takes account of outcomes like tourism revenue and business formation in newly connected regions.

Set up the conditions to build more regional airline infrastructure. Private developers and municipalities already want to build out more regional air infrastructure today but are held back by restrictive federal rules. Direct the Minister to solicit new requests for airport development fast-track the review and approval of regional airport construction or expansion.

To help smaller hubs grow sustainably, Transport Canada should launch a new ‘Regional Connector Airport’ framework within the Canadian Aviation Regulations—enabled by the Aeronautics Act—to provide certified facilities serving small markets with flexible compliance options that maintain safety while reducing cost drivers such as full TP312 build standards or on-site ARFF where traffic volumes don’t warrant them. This targeted regulatory flexibility would remove unnecessary barriers that currently make airline service to smaller markets financially challenging, without compromising safety or security.

Make it easier for regional airports to run services. Direct Transport Canada and CATSA to use existing cost-recovery authority to deploy mobile screening teams and equipment on a scheduled, seasonal basis to non-designated airports that meet safety and traffic thresholds, with a published service standard and a fast-track ‘designation-on-demand’ pathway where demand recurs; make targeted CASR tweaks only if needed to remove residual barriers to temporary deployments and sterile transfers. In parallel, modernize the Customs Act and Immigration and Refugee Protection Regulations to authorize CBSA-led remote processing for low-risk international charters (secure video identity checks, advance electronic manifests, and random on-site inspections), and, pending those changes, expand appointment- and cost-recovered AOE service so more regional aerodromes can clear seasonal charters. 

Adopt proportionate lending rules for small-business credit in underserved and growing places and  regions. To ensure capital follows Canada’s shifting population and business growth outside major hubs, the Office of the Superintendent of Financial Institutions (OSFI) should issue targeted prudential guidance that enables lenders to tailor underwriting, valuation, and documentation requirements for low-risk commercial loans in rural, remote, and small-market areas. Under the new guidance, banks could use remote or satellite-based appraisals validated by recognized valuation standards, incorporate seasonal cash-flow cycles common in tourism, agriculture, and resource sectors, and accept well-substantiated alternative data sources—such as utility and rent payment histories—for credit assessment. This would recognize the same risk-based compliance principles already embedded in federal AML rules, while reducing the disproportionate administrative burden that currently treats a $50,000 tourism loan in Whitehorse much like a $50 million corporate facility in Toronto, making small-scale regional lending commercially viable.

Common Questions

Won’t subsidizing regional air service create market distortions and waste taxpayer money? These proposals do not use subsidies or redirect government spending. Iceland’s experience shows strategic focus on building out air connectivity generates massive returns through increased tourism and economic activity. Market forces alone haven’t solved rural connectivity because we have simply made it too cumbersome to build out regional infrastructure. If the government makes it clear they will support the regional realities to let local communities set up the infrastructure they need, regional hubs will naturally develop.

How can small airports handle increased traffic without major infrastructure upgrades? The Regional Connector Airport classification specifically addresses this concern by reducing certification requirements for smaller operations. Many regional airports already have adequate runways and facilities but face regulatory barriers that prevent commercial service. Mobile security screening eliminates the largest infrastructure hurdle while maintaining safety standards. In addition, by lowering the regulatory burden and directing the Ministry of Transport to support new projects the government can attract private investors that will support the infrastructure upgrades.

Will simplified lending rules compromise financial stability and increase bank failures? The proposal maintains OSFI oversight and safety standards while allowing banks to use appropriate underwriting for small-scale regional lending. Remote appraisals and alternative data sources are already standard practice for consumer lending. The changes target artificial barriers that prevent banks from serving rural markets, not fundamental risk management requirements. Regional economic development actually reduces systemic risk by diversifying the economy away from a few major centers.

Conclusion

Canada’s geography is both its greatest challenge and its greatest opportunity. The country has natural assets that dwarf those of any competitor, yet poor connectivity prevents most regions from contributing their full economic potential. This isn’t just about transportation or tourism. It’s about whether Canada can function as a unified economic system or will remain a collection of isolated places and markets.

The solution is proven and actionable. Iceland transformed its economy by making strategic investments in connectivity and turning geographic position into competitive advantage. Canada can do the same on a continental scale through coordinated ground-up, top-down initiatives alongside market actors and communities, reforms to aviation regulations, commercial lending rules, and regional place-based, development strategies.

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