Airlines face rising pressure to drop fuel hedging as costs stay high

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Airlines fuel hedging under pressure

Highlights

Airlines are reviewing 2027 planning as elevated spot and forward jet fuel prices are pressuring profits, capacity, and fleet decisions.
Delta cut its December profit forecast, projecting $6bn in additional full-year fuel costs, while American Airlines expects a $1bn fourth-quarter cost hit per $1-per-gallon fuel increase.
Despite heavy hedging, carriers like IAG and Ryanair have underperformed Delta, prompting renewed debate on abandoning fuel hedges in favor of simpler financial strategies.

Fuel costs reshape airline planning

As reported by Financial Times, airlines are reassessing fuel-buying strategies as spot jet fuel prices remain elevated and forward prices for future delivery continue to rise. That shift is pushing carriers to review 2027 plans, especially as expensive fuel adds to broader pressure on profits and capacity decisions.

Several groups, including Southwest, American Airlines, easyJet and Lufthansa, have already responded by trimming winter schedules. EasyJet and Lufthansa are also accelerating the retirement of older aircraft, while Delta last week cut its December profit forecast and said higher fuel prices would add $6bn to its full-year costs.

U.S. airlines have largely chosen not to hedge fuel, accepting greater swings in earnings instead. American Airlines recently said that a $1 per gallon increase from the fuel price assumption it used in July adds $1bn to its fourth-quarter costs, and LSEG estimates now show expected 2027 earnings of $720mn, down from $1.6bn forecast a year earlier.

Mixed results weaken the case for hedging

European carriers have generally kept hedging programmes in place, but those protections have not fully insulated them from the latest jump in costs. As existing contracts near renewal, airlines face a difficult choice between locking in high prices now or remaining exposed in case fuel becomes even more expensive.

Past market moves also highlight the downside of hedging when oil prices fall sharply. In 2014, several carriers were caught out when crude prices dropped steeply, with Cathay Pacific losing $2.2bn on derivatives over the following two years and Delta taking a $3.5bn hit before ending its hedging programme.

Share price performance offers little evidence that hedging has created a clear advantage. Delta shares are up 11 per cent since the U.S. began bombing Iran, outperforming both U.S. and European peers without fuel protection, while IAG, which is 70 per cent hedged for the rest of 2026, is down 3 per cent and Ryanair shares have fallen by a quarter despite an 80 per cent hedge through March 2027 at less than half the current spot fuel price.

That uneven record strengthens the argument that airlines, especially in Europe, should simplify their financial strategy and let investors judge them more on execution and customer demand than on hedging decisions. For the sector, abandoning fuel hedges could mean more earnings volatility, but it may also make operating performance easier to compare across carriers.

Our earlier report on the surge in crude oil shipping costs explained how conflict-related risks and rerouting around key chokepoints have pushed tanker rates to record levels, making freight a much larger share of the delivered oil price. It also noted that these higher transport and insurance costs can filter through into more expensive gasoline and other consumer prices, with import-dependent regions and refiners especially exposed.

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