Airlines Struggle With Soaring Jet Fuel Prices as Hedging Strategies Fall Short

Airlines around the world are confronting a sharp and unexpected surge in jet fuel costs, forcing carriers to raise fares, add fuel surcharges, and cut flight capacity. The spike comes as global oil markets react to the ongoing U.S.-Israeli conflict with Iran, but the increase in jet fuel prices has far outpaced the rise in crude oil—undermining financial strategies many airlines use to protect themselves from fuel volatility.

Jet Fuel Prices Outpace Oil Surge

Jet fuel prices typically move in tandem with crude oil. But since the Iran conflict began, jet fuel prices have roughly doubled, compared with about a one-third increase in Brent crude oil.

The gap is largely driven by soaring refining margins—the cost difference between crude oil and refined products like jet fuel. Those margins have jumped dramatically, leaving airlines exposed even if they had hedged against rising oil prices.

“We do have some protection from crude hedging,” said Rebecca Sharpe, chief financial officer of Cathay Pacific Airways, speaking in Hong Kong after the airline released earnings. “But it’s not protecting against jet fuel prices in totality.”

Most airline hedging contracts are tied to crude oil benchmarks rather than the actual price of jet fuel. That means carriers can still face significant cost increases when refining margins surge.

Airlines Raise Fares and Cut Capacity

To offset rising fuel expenses, airlines are already passing costs on to travelers.

Carriers across multiple regions have announced fare increases, new fuel surcharges, and reductions in flight capacity. For U.S. travelers—already accustomed to fluctuating ticket prices tied to fuel costs—the changes could translate into higher airfare heading into the summer travel season.

Fuel is typically the second-largest expense for airlines after labor, making sudden price increases particularly disruptive to profit margins.

Industry experts say the current environment could persist for months, especially during periods of geopolitical instability.

“Historically, when crises in the Middle East disrupt energy markets, higher fuel prices can linger,” said aviation analyst Hans Joergen Elnaes.

Low-Cost Airlines Face the Most Pressure

Budget airlines may feel the biggest impact from rising fuel costs.

Low-cost carriers operate on thin margins and cater primarily to price-sensitive travelers. That limits their ability to pass higher costs directly to customers without hurting demand.

“Low-cost carriers that serve the most price-sensitive customers tend to get squeezed the most,” said Nathan Gee, head of Asia-Pacific transportation research at Bank of America.

In Europe, a sustained 10% increase in jet fuel prices could significantly reduce operating profits across the airline sector. According to J.P. Morgan estimates:

• Wizz Air could see operating profit fall by as much as 31%
• Major European airline groups—including Air France-KLM, Lufthansa, International Airlines Group (owner of British Airways), and Ryanair—could see profit impacts between 3% and 10%

Hedging: Protection With Risks

Airlines commonly use hedging contracts—financial derivatives tied to oil prices—to shield themselves from sudden fuel price spikes.

However, hedging is not a perfect solution.

When oil prices fall, airlines locked into hedge contracts may end up paying above-market rates. In the past, such contracts have produced significant financial losses for some carriers.

In the current situation, hedging tied to crude oil offers only partial protection because the biggest increase has occurred in refining margins rather than oil itself.

That mismatch has left many airlines more exposed than expected.

Asian Airlines Grapple With Refining Margin Shock

The surge in refining margins has been particularly dramatic in Asia.

Before the conflict, jet fuel prices in the region were roughly $21 per barrel higher than crude oil. By early March, that margin briefly expanded to $144 per barrel, before easing to around $65—still far above typical levels.

“That’s where the real blowout happened and where airlines have the least protection,” Gee said.

Some airlines in the Asia-Pacific region hedge crude oil but not jet fuel specifically. Others have limited or no hedging at all.

Singapore Airlines and Virgin Australia are among the carriers with stronger protections against jet fuel price increases, according to industry analysts.

Meanwhile, airlines such as Air New Zealand and Qantas—despite not operating routes to the Middle East—have already raised ticket prices to protect their margins.

Bank of America estimates that Asian airlines’ combined net profits in 2026 could drop by about 6% for every $10 per barrel increase in refining margins lasting 90 days, assuming airlines do not fully offset the cost through higher fares.

Why Jet Fuel Hedging Is Rare

One reason airlines do not hedge jet fuel more aggressively is the structure of the market itself.

Compared with crude oil, the jet fuel derivatives market is much smaller and less liquid, making hedging both more expensive and more difficult.

“The market is very thin, and that makes it very expensive,” Sharpe said. “Fuel prices can be highly volatile, and we don’t have a crystal ball about the future.”

Outlook for Airlines and Travelers

If refining margins remain elevated, airlines may face continued financial pressure throughout 2026. For passengers, that likely means higher ticket prices and fewer discounted fares—especially on routes operated by budget carriers.

While airlines can adjust pricing and capacity, the current surge highlights a persistent vulnerability in the industry: even sophisticated hedging strategies cannot fully shield carriers from sudden disruptions in the global energy market.

As geopolitical tensions continue to ripple through fuel markets, airlines—and travelers—may be forced to brace for a more expensive era of air travel.

John Irving

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