UBS: If oil prices rise to $80 per barrel, three major airlines in the mainland may all fall into losses.

UBS released a report stating that the sudden conflict in the Middle East has led to a surge in oil prices, which may have a significant negative impact on the profitability of China's aviation industry in the short term. The bank's sensitivity analysis shows that if oil prices rise to $70 per barrel, it is estimated that the profitability of the three major airlines in 2026 will be negatively impacted by 40% to 60%. In addition, with valuation higher than industry peers, the stock prices of Chinese airlines are facing downward pressure. UBS maintains a "sell" rating on Air China Limited (00753) and CHINA EAST AIR (00670) H shares. The report points out that fuel costs are the largest single operating cost for Chinese airlines, accounting for 30 to 40% of total costs. Through sensitivity analysis of fluctuations in crude oil prices, it is estimated that a $1 increase in Brent crude oil per barrel will reduce the net profit of the three major airlines in 2026 by 362 million to 426 million yuan, and reduce Spring Airlines (601021.SH) by 50 million yuan. When oil prices reach $70 per barrel, the bank estimates that the net profit of the three major airlines in 2026 will decrease by 40% to 60%; if oil prices rise to $80 per barrel, all three major airlines may incur losses. Although the impact on Spring Airlines is expected to be much smaller, sensitivity analysis shows that when oil prices are $70 and $80 per barrel, the net profit in 2026 is expected to be dragged down by 8% and 23% respectively. In terms of foreign exchange, the bank estimates that a 1% appreciation of the renminbi will bring a 4% to 6% increase in earnings for the three major airlines.