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Aviation sector is booming: Rolls-Royce share price could benefit

on Jun 5, 2023
  • The aviation sector is expected to generate over $9.8 billion in profits this year.
  • OEM companies like Boeing and Airbus have received over 1,500 orders.
  • Rolls-Royce Holdings could benefit as the industry booms.

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The civil aviation industry is doing better than expected. In a report, IATA, the industry’s trade body, said that the industry’s profits this year will jump to over $9.8 billion. The body previously estimated that the industry will make $4.7 billion. Therefore, if the report is accurate, it could benefit a company like Rolls-Royce (LON: RR), which provides services to airlines.

Aviation sector rebound gains steam

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Most airlines published strong financial results recently. Delta Airlines reported a loss of over $363 million, sharply lower than last year’s $940 million. American Airlines’s net income came in at over $10 million after it lost over $1.3 billion a year earlier. Other companies like Singapore Airlines and IAG reported strong results. 

Analysts believe that the aviation industry will continue doing well in the coming months. For one, airfares in many countries are falling while demand is still at an elevated level. As noted, IATA believes that the companies’ revenue will continue soaring this year.

This trend could benefit Rolls-Royce, a company that provides services to airlines. The company makes most of its money by providing engine services to airlines like Emirates, British Airways, Qantas, Lufthansa, and Singapore Airlines.

Rolls-Royce Holdings make most of its money providing these services. In some instances, the company does not make money selling engines. Instead, it enters long-term contracts where it is paid to provide mandatory contracts.

Still, Rolls-Royce is facing a challenge from Boeing and Airbus, the biggest manufacturing companies in the industry. The two companies have already received over 1,200 orders this year, which is another sign that the industry is booming. 

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However, the two companies are struggling to fill these orders because of parts delays. The only tailwind is that Rolls-Royce is being called upon to service retired aircraft that are coming back to service.

Rolls-Royce share price forecast

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Rolls-Royce share price

RR chart by TradingView

The daily chart shows that the RR share price has been in a strong bullish trend for a few months. Recently, however, the stock has struggled moving above the key resistance level at 158.20p. It remains slightly above the 50-day moving average while the Relative Strength Index (RSI) has formed a bearish divergence pattern.

Therefore, the outlook of the stock is neutral for now. More upside will be confirmed if it moves above the key resistance point at 158.20p. A move above that level will see it jump to 200p, as I wrote in this article.


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