In October this year, the Covid-19 pandemic and its impact on the aviation sector seemed to have done irreparable damage to the Rolls-Royce share price.
Shares had fallen to their lowest levels since 2004, after the company announced plans to raise extra cash to bolster its finances. The launch of a £1bn bond issue, as well as a £2bn 10-for-3 rights issue at a 41% discount to 130p, was eventually taken up by shareholders.
However, the rollercoaster year for the Rolls-Royce share price took another twist in early November, when it started to rise, eventually tripling from those lows of 35p to a high of 135p.
A shot in the arm for the Rolls-Royce share price
It was the prospect of a vaccine that pulled the Rolls-Royce share price out of its tailspin. The pandemic was a complete disaster for the engine-maker, as the entire aviation sector took a huge hit. Passenger traffic was down as much as 98% year-on-year during the peak of the pandemic, and the International Air Transport Association (IATA) expects airlines to make an $118.5bn net loss this year.
The knock-on effect hit Rolls-Royce hard, with customers taking steps to delay or cancel future aircraft orders, and the Rolls-Royce share price and order book took a nosedive. Despite the return of air travel after the widespread grounding earlier in the year, there is yet to be a return to anything approaching normality.
However, vaccine news has helped the Rolls-Royce share price fly. In early November, on the news that Pfizer had a functioning vaccine, the Rolls-Royce share price jumped 35%, from 64p to 107p.
With the first vaccines now being administered in the UK, and the positivity that it has brought, the Rolls-Royce share price has continued to trade well above the lows of October, as investors see a light at the end of what was a particularly dark tunnel.
Rolls-Royce share price set for a better 2021?
While the shutdown of the aviation sector is likely to see another quarter of cash burn at Rolls-Royce, it is important to remember that on a longer term basis, the outlook is probably somewhat brighter. IATA has predicted a 50% improvement on the finances of airlines in 2021, which will be a boost to the Rolls-Royce share price, as companies begin to up their passenger numbers and flight routes.
More good news for the engineering company, came in the form of the UK government’s new energy plans, with Rolls-Royce part of a consortium set to build 16 mini nuclear plants in the UK. It is also working on a prototype engine that uses 100% sustainable aviation fuel, as the wind blows in the direction of more renewable energy sources.
Cost-cutting set to continue
Rolls-Royce has also continued to announce job losses with fears another 1,400 could go at Barnoldswick, where the company makes the fan blades for its engines, with production shifted to Singapore. The company has moved to cut 9,000 jobs since the start of the pandemic, with 3,000 of those in the UK.
Chris Cholerton, president for Rolls-Royce civil aerospace division, stated that it would "take years to recover” from the pandemic and that the restructuring of the business could see Rolls-Royce “emerge as a stronger, more efficient and sustainable business.”
What will the impact of the Q3 results be on the Rolls-Royce share price? Find out when the numbers are released on Friday at 7am.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.