The Middle East conflict is reshaping the cost and demand landscape of China's transport, leisure, and beauty sectors

Overview

This report discusses the impact of the Middle East conflict on China's transport, leisure, and beauty-related industries. Core variables include rising oil prices, disruptions in the Strait of Hormuz and the Red Sea, shrinking Asia-Europe air cargo supply, shifts in travel destinations, changes in cosmetics consumption structure, and the continuation of anti-involution policies in the express delivery industry. The overall conclusion is that the conflict creates both cost pressures and structural opportunities: airline passenger transport is more visibly hit by oil prices, while freight and shipping benefit from tight supply and rerouting, and premium beauty and domestic tourism benefit from returning demand and recovering confidence among middle- and high-income consumers.

Core views

UBS believes outbound tourism may partially shift toward domestic destinations due to Middle East route cancellations, fuel surcharges, and higher direct-flight ticket prices, while Hainan duty-free sales still have a strong foundation for growth. Airline passenger transport is under short-term pressure from oil prices, but restricted domestic supply, higher ticket prices, and international route expansion still support fundamental improvement. On the cargo side, Middle Eastern airlines account for about 20% of the Asia-Europe air cargo market, and the conflict has led to a sudden withdrawal of supply; Chinese airlines, benefiting from access to Russian airspace, can shorten flight times by 30-40% versus European airlines and therefore have an opportunity to gain share. In beauty, premium international brands benefit from recovering consumer confidence, platform traffic allocation, and increased marketing budgets, while some mass-market domestic brands face weaker Douyin traffic tailwinds, intensifying competition, and declining marketing returns. In express delivery, regulatory anti-involution efforts are driving average selling prices to stabilize, and industry profit growth may outpace parcel volume growth.

Analysis framework

The report combines industry operating data, channel checks, expert interviews, UBS Evidence Lab datasets, shipping AIS monitoring, aviation capacity and fare data, management discussions with companies, and valuation risk frameworks to make scenario-based judgments on changes in demand, pricing, cost, and supply across sub-sectors. For airlines, it uses oil price and exchange rate sensitivity analysis; for express delivery, beauty, and individual stocks, it explains risks using valuation methods such as SOTP, PE, or DCF.

Methodology notes

• Data assetUBS Evidence Lab China Outbound Travel Changes Consumer Survey

  China outbound leisure traveler survey

  This survey covers Chinese outbound leisure travelers planning to travel to Japan around year-end 2025 or in 1Q26, and is used to assess changes in consumer awareness, usage, and attitudes toward travel to Japan.

• Data assetUBS Evidence Lab Daily Maritime Trade Disruption Monitor

  Daily maritime trade disruption monitoring

  This tool uses hourly AIS data to monitor the positions of more than 35,200 commercial vessels globally, and combines IMO numbers, vessel type, size, and deadweight tonnage data to estimate cargo flows at key maritime nodes, ports, and regions.

• Sensitivity analysisOil price and exchange rate sensitivity analysis

  Sensitivity of airline profits to Brent oil prices and the RMB exchange rate

  The report estimates the impact of every US$1/bbl increase in Brent on the 2026E net profit of China's Big Three airlines and Spring Airlines, and also estimates the positive contribution of RMB appreciation to airline profitability.

• Valuation methodSOTP, PE, DCF

  Sum-of-the-parts valuation, P/E valuation, and discounted cash flow valuation

  The report discloses that J&T Global Express uses SOTP, ZTO's target price is based on PE, and Mao Geping and Shiseido use DCF valuation, with upside and downside risks listed separately.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China airline passenger transport

  Pressured by oil prices but fundamentals are still improving

  Strengths

  Domestic supply is constrained, ticket prices are expected to rise 1-3% in 2026E, and international passenger traffic may grow at a double-digit rate.

  Weaknesses

  Fuel costs account for 30-40% of total costs, and rising oil prices have a significant profit impact on the Big Three airlines.

  Comparison

  Spring Airlines is less affected by oil prices than the Big Three airlines, but under US$70/80 per barrel scenarios, its 2026E net profit could still decline by 8%/23%.

  Risks

  Continued Brent increases, exchange-rate volatility, and a slower-than-expected recovery in international routes.

• China air cargo

  The Middle East conflict brings structural tailwinds

  Strengths

  Middle East capacity has shrunk by about 20%, and Chinese airlines can use Russian airspace, with flight times 30-40% shorter than European airlines.

  Weaknesses

  Still affected by fuel costs, geopolitical policies, and international trade demand.

  Comparison

  Compared with European airlines rerouting via southern paths, Chinese airlines have greater efficiency and cost advantages on Asia-Europe routes.

  Risks

  A rapid easing of the conflict leading to capacity recovery, or weaker trade demand pressuring freight rates.

• Oil shipping and container shipping

  Freight rates supported by supply disruptions

  Strengths

  Traffic through the Strait of Hormuz is 95% below normal, and rerouting plus alternative port usage are supporting VLCC and SCFI rates.

  Weaknesses

  Freight rates are highly sensitive to geopolitical developments and may fall if routes normalize.

  Comparison

  Earnings on some VLCC routes have risen sharply versus pre-conflict levels, and SCFI has also strengthened both YoY and sequentially.

  Risks

  Iran allowing some vessels to pass, easing disruptions in the Red Sea and the Strait of Hormuz, and weakening global demand.

• Hainan duty-free and domestic tourism

  Benefits from outbound substitution and returning traffic to domestic destinations

  Strengths

  Hainan duty-free sales rose 26% YoY in January-February, March is expected to grow 20-30%, and the 2026E growth forecast remains at 25%.

  Weaknesses

  There is uncertainty in airport and online businesses, and changes in industry access policy may affect the competitive landscape.

  Comparison

  Compared with destinations such as Japan, the Middle East, and Europe that are affected by flights, ticket prices, or safety factors, Hainan may become a substitute option.

  Risks

  Weak economic conditions, lower-than-expected peak-season traffic, weather and disasters, and relaxation of duty-free industry access.

• Premium beauty and travel retail

  Benefits from recovering confidence among middle- and high-income consumers

  Strengths

  Cosmetics retail sales rose 4.5% YoY in January-February, and premium international brands performed strongly during Valentine's Day and IWD campaigns.

  Weaknesses

  Recovery depends on consumer confidence, platform traffic support, and marketing investment.

  Comparison

  International premium brands are outperforming some mass-market domestic brands; Shiseido China and travel retail, as well as Mao Geping, may benefit more.

  Risks

  Weaker consumer sentiment, intensifying competition, single-brand growth ceilings, and rising marketing expenses.

• Mass-market domestic beauty brands

  Relatively under pressure

  Strengths

  Some brands still have strengths in local channels and price positioning.

  Weaknesses

  Douyin beauty GMV growth is slowing, traffic tailwinds are fading, and platform and KOL resources are tilting toward premium international brands.

  Comparison

  Compared with premium international brands, mass-market domestic brands face stronger competitive pressure and greater pressure on marketing ROI.

  Risks

  Further slowdown in online sales, intensifying price competition, and rising promotional and placement expenses.

• Express logistics

  Anti-involution supports pricing and profits

  Strengths

  Industry ASP has risen YoY for the first time, 2026E parcel volume is expected to grow 8-10%, and profit growth is likely to outpace parcel volume.

  Weaknesses

  Growth in low-price parcels is slowing, while fuel and social security costs still pose pressure.

  Comparison

  YTO parcel volume grew 17% in January-February and gained share, STO grew 11%, SF grew 9%, and Yunda declined 7%; UBS prefers J&T and ZTO.

  Risks

  Higher oil prices, increased costs from social security implementation, slower e-commerce growth, and lower per-parcel pricing.

• Personal care and home care

  Constrained by the risk of rising raw material prices

  Strengths

  Softcare may expand share through local manufacturing in Africa and economies of scale, while Hengan plans to offset cost pressure through mid- to high-end products.

  Weaknesses

  Key raw materials such as nonwovens and superabsorbent resin may rise in price due to supply chain disruptions.

  Comparison

  Companies with local manufacturing and scale advantages are more resilient than smaller competitors.

  Risks

  Rising raw material prices, continued intense competition in domestic hygiene products, and insufficient cost pass-through.

Key data

• Traffic through the Strait of Hormuz95% below normal levelsThe Middle East conflict has significantly disrupted energy and shipping corridors.
• Brent oil price impactup more than 50%Rising oil prices increase cost pressure for aviation, express transportation, and personal care raw materials.
• SCFI freight rate+7% WoW, +35% YoY; up 37% since the end of FebruaryContainer shipping rates are supported by rerouting, tight supply, and Middle East disruptions.
• Hainan duty-free salesup 26% YoY in January-February 2026; 2026E expected to grow 25% YoYThe number of shoppers rose 17% YoY, and per-capita duty-free spending rose 8% YoY.
• Cancellation rate for China-to-Middle East routesabout 60%The Middle East conflict directly affects air connectivity between China and the Middle East.
• China civil aviation passenger volume in February+11% YoY; international routes +16% YoYThe Chinese New Year holiday drove strong civil aviation demand.
• Overall load factor87.2%, up 1.8ppt YoY1.1ppt above the 2019 level.
• Average domestic airfare+24.5% YoYFlight Master data show a significant rise in domestic ticket prices in February.
• Fuel cost as a share of airline costs30-40%The largest single operating cost for Chinese airlines.
• Impact of every US$1/bbl increase in BrentBig Three airlines' 2026E net profit down Rmb362-426m; Spring Airlines down Rmb50mReflects airline passenger transport's high sensitivity to oil prices.
• Middle Eastern airlines' share of Asia-Europe air cargoabout 20%Emirates, Qatar, and Etihad occupy significant capacity through regional hubs.
• Chinese airlines' airspace efficiency advantage30-40% shorter flight time than European peers, about 2-4 hoursThis is because Chinese airlines can use Russian airspace to fly to Europe.
• VLCC spot earningsUS$356k/150k/130k per day on Middle East/US Gulf/West Africa to China routes, respectivelyAs of March 26, versus pre-conflict levels: +63%, +20%, and -31%, respectively.
• VLCC calls at Yanbu port+218% YoY; +162% versus pre-conflictGreater use of alternative routes is supporting high freight rates.
• China cosmetics retail salesRmb75.3bn in January-February 2026, +4.5% YoYGrowth exceeded the +2.8% increase in total retail sales of consumer goods over the same period.
• Express delivery industry parcel volume+7% YoY in January-February 2026; 2026E expected at +8-10%Anti-involution and tighter e-commerce tax policies are slowing growth in low-price parcels.
• Express delivery industry ASPup 1% YoY in January-FebruaryThe first YoY increase since last year, showing that anti-involution policies are taking effect.

Impact & implications

From an investment perspective, the report favors sub-sectors and companies that can benefit from geopolitical disruptions, supply tightness, or consumption upgrading, including air cargo, oil tankers and container shipping, premium beauty, Hainan duty-free, leading express delivery players, and logistics platforms with global expansion capabilities. In contrast, caution is warranted toward oil-price-sensitive airline passenger transport, domestic beauty brands reliant on the mass market and traffic tailwinds, and personal care and home care companies facing rising raw material costs.

Risks

• Continued or suddenly easing disruptions from the Middle East conflict and from the Red Sea and Strait of Hormuz could both alter freight rate and cost assumptions.
• Further increases in Brent oil prices would squeeze profits for airline passenger transport, express delivery, and personal care companies.
• A weaker-than-expected recovery in Chinese consumer confidence could drag on demand for premium beauty, duty-free, hotels, and tourism.
• Outbound tourism is affected by flight cancellations, safety headlines, fuel surcharges, and visa transit arrangements, so destination mix may continue to change.
• If anti-involution policies in the express delivery industry are implemented less effectively than expected, price stabilization and profit improvement may be weaker than expected.
• Mass-market domestic beauty brands face pressure from fading Douyin traffic tailwinds, intensifying competition, and unfavorable KOL terms.
• Personal care and home care companies face the risk of rising prices for raw materials such as nonwovens and superabsorbent resin.
• If access to the duty-free industry is relaxed or online business performs poorly, profitability of existing operators may be affected.

What to watch

• Changes in Brent oil prices, the RMB exchange rate, and domestic refined oil pricing policy.
• Traffic through the Strait of Hormuz, rerouting in the Red Sea, VLCC earnings, and SCFI trends.
• Cancellation rates, direct-flight ticket prices, and fuel surcharges on routes from China to the Middle East, Europe, and Japan.
• Monthly Hainan duty-free sales, shopper numbers, and per-capita spending trends.
• Domestic supply, load factors, ticket prices, and the pace of international route recovery for airlines.
• The Asia-Europe air cargo capacity gap and expansion of Chinese airlines' European routes.
• Performance of mid- to high-end beauty brands, Mao Geping, Shiseido, and mass-market domestic brands during the 618 shopping festival.
• Express delivery industry ASP, parcel volume growth, implementation of social security policies, and fuel cost pass-through.
• Changes in raw material prices such as nonwovens and superabsorbent resin for HPC companies.