Rolls-Royce Holdings PLC (LSE:RR.) is set to benefit from Chinese travel recovery, brokers at UBS reckon.
February data from Chinese regulator CAAC highlighted domestic revenue passenger kilometres (RPKs) are already at 95% of 2019 levels, with international RPKs sharply increasing to 13%.
That’s up from 3.4% in 2022 and 8.6% in January, analysts noted.
However, planned weekly domestic flight volumes for March to October are still mostly flat year-over-year, which UBS termed “marginally disappointing.”
“This could reflect shifting of capacity to international routes, which are not yet published, as well as existing spare domestic capacity,” analysts noted.
Domestic load factors have improved to 77.6% in February from an average of 65.2% in 2022 but remain below pre-pandemic levels of around 85%, according to the note.
Trent 700 'higher margin' engine
With traffic improving, the engine manufacturer’s Trent 700 engine is likely to be generating higher profit margins than Rolls-Royce’s other major engine programs, analysts noted.
The Trent 700 powers the Airbus 330 plane.
“Having lagged the A330ceo recovery to date we are comforted that the engine has seen materially increased use as China has recovered,” UBS noted.
The research house has a Buy rating and £2 price target on Rolls-Royce stock.