Key facts
- Airlines are pulling back on fuel hedging due to elevated jet fuel prices.
- Airlines warn of significant airfare increases to compensate for higher fuel costs.
- Jet fuel prices are approximately double pre-Iran war levels.
- Ryanair CEO Michael O'Leary predicted a 15%-20% rise in European airfares due to lack of hedging.
- US airfares rose over 20% year-on-year in September, while EU fares increased 5.8%.
Airlines are increasingly choosing not to hedge against future fuel price increases, a strategy shift driven by elevated jet fuel costs stemming from the ongoing Iran war. With fuel prices roughly double pre-conflict levels, carriers are wary of locking into expensive contracts if geopolitical tensions ease. This reluctance to hedge, coupled with expiring hedges from before the war, means passengers globally are likely to face higher airfares as airlines pass on increased costs. Some carriers, like Ryanair, predict fare hikes of 15% to 20%, while others, such as Norwegian Air Shuttle, have already found customers unwilling to absorb higher prices. US airlines have largely avoided hedging, relying on consumers' perceived greater willingness to absorb fare increases.