Key facts
- Rising oil prices, influenced by Middle East tensions, are increasing jet fuel costs for airlines.
- Airlines use financial instruments like futures and options to hedge against fuel price volatility.
- U.S. airlines, having largely ceased hedging, face greater exposure to potential cost increases.
- Several major airlines have disclosed varying percentages of their fuel consumption hedged for upcoming periods.
- Hedging strategies and coverage levels differ significantly among global carriers.
Rising oil prices, exacerbated by geopolitical tensions in the Middle East, are driving up jet fuel costs, a significant expense for airlines. Brent crude oil recently hit a six-week high of $97 per barrel, while spot Northwest European jet fuel prices reached $1,476 per metric ton.
Airlines are employing various hedging strategies, primarily using futures and options, to mitigate these price increases. They also hedge against fluctuations in the U.S. dollar, as jet fuel is priced in dollars.
U.S. airlines, which have largely abandoned fuel hedging practices, are expected to be the most vulnerable to prolonged price hikes. In contrast, many international carriers maintain active hedging programs with varying coverage levels for future fuel consumption.
For instance, Air France-KLM has hedged about 67% of its expected 2026 fuel needs and 40% for 2027. Cathay Pacific covered 50% of its second-quarter fuel cost increases through its program. EasyJet has hedged 62% of its jet fuel requirements for the first half of 2027. Lufthansa reported an 86% hedge ratio for 2026, while Ryanair has covered approximately 77% of its fuel needs for the fiscal year ending March 2026.
Other airlines like IAG, owner of British Airways, have seen their hedging down year-on-year but maintain a policy of hedging up to 75% of near-term needs. Qantas reported an 85% hedging position for the first half of the upcoming year. Singapore Airlines hedges fuel for up to five years, with decreasing coverage in later periods. Wizz Air has hedged 76% of its fiscal 2027 fuel requirements. SAS, however, has temporarily adjusted its policy and has 0% hedged for the next 12 months due to market uncertainty.