As Iran war drags on, airlines pull back on fuel hedges and warn on fares
With jet fuel prices roughly double pre-war levels, airlines are reluctant to add fuel hedges and warn fares may rise to offset higher costs. Ryanair CEO Michael O'Leary said fares may increase 15% to 20% until summer 2027.
1. Hedges become less attractive
Airlines are increasingly reluctant to lock in future fuel costs as jet fuel prices climb amid the Iran war. Hedging can provide cost certainty, but new positions at elevated prices may leave carriers committed to expensive fuel if prices fall; some programmes also require premiums or collateral.
2. Carriers face higher costs
AirAsia CEO Tony Fernandes said most hedging was finishing and the airline was budgeting for 12 months of high oil prices. Finnair has stopped adding new hedges and reported an average hedging ratio of 34% for 2027. Ryanair said it had stopped hedging and covered about 80% of its jet fuel needs for the year ending March 2027; O'Leary said European airlines were not well hedged through summer 2027 and forecast fare increases of 15% to 20%.
3. Fares and exposure vary
Norwegian Air Shuttle said it had reversed some post-war fare increases because customers were unwilling to pay. US airlines have largely abandoned fuel hedging; American, United, Delta, JetBlue and Allegiant have no material hedges, while Southwest ended its programme last year. Fuel represents 30% to 40% of airline costs, and Delta, United and Southwest cut profit targets or disappointed investors with their earnings outlooks this month as fuel expenses rose.
