Jet Fuel Nears Double Prewar Levels as Airlines Review Hedging
Key Facts
Jet fuel prices are approaching twice their pre-Iran war levels, prompting some airlines to hold back on new hedges, according to a Reuters report published by Investing.com on October 28, 2026. The pullback varies from one airline to another and does not represent a uniform shift across the sector. Ryanair Chief Executive Michael O’Leary said European airlines, including his own, are not well hedged through summer 2027. He estimated that airfares could rise 15% to 20%. The warning puts fuel costs at the center of pricing decisions, as airlines differ in their ability to protect their balance sheets from persistently high prices.
AirAsia Chief Executive Tony Fernandes said most of the company’s hedges are expiring and that it is budgeting for oil prices to remain elevated for 12 months. That estimate reflects the company’s readiness to deal with fuel cost pressure for an extended period, rather than assuming prices will quickly fall. Finnair has stopped adding new hedges after fuel costs rose, and its average hedge ratio for 2027 is about 34%. The company said higher fuel prices have already been reflected in ticket prices. These cases show how airlines differ in the timing and scale of hedging, and how quickly costs are passed through to fares.
Ryanair said in September that it had stopped hedging after covering about 80% of its jet fuel needs for the year ending in March 2027. That coverage protects the company for that period, but does not mean its needs in subsequent periods are protected to the same degree. Hedging itself may require premiums, collateral or other costs, and may also lock a company into high prices if tensions ease and prices fall. On the other side of the exposure, O’Leary said major U.S. airlines American, United, Delta, JetBlue and Allegiant have no significant fuel hedges, while Frontier has no active hedging position. Air New Zealand’s chief financial officer said its program provides “some nearer-term protection, but it is far from a complete solution.”
Jet fuel accounts for between 30% and 40% of airlines’ costs, according to the Reuters report, making price changes consequential for operating calculations. The International Air Transport Association estimated that the average fuel price would reach $152 per barrel in 2026, an increase of about 70% from an average of $90 in 2025. It also forecast fuel’s share of operating expenses would rise to 31.4% in 2026, compared with 25.4% in 2025. The association said airlines globally had hedged about one-third of their expected fuel consumption in 2026. Hedging eases cost volatility in the short term but does not eliminate companies’ exposure to a sustained rise in prices.
Fare data show a divergence between the European and U.S. markets. Airfares in the European Union rose 5.8% year over year in September, while they increased by more than 20% in the United States in the same month. According to the U.S. Bureau of Labor Statistics, the airfares index rose 22.4% in the 12 months ended September 2026. On a monthly basis, the index climbed 2.0% in September after a 2.2% increase in August. Delta, United and Southwest cut profit targets or missed investors’ profit expectations during October as fuel expenses rose.
But passing costs on to travelers faces limits tied to what customers are willing to pay. A Norwegian airline said it had to roll back some increases introduced after the Iran war because customers “were not willing to pay.” In a separate report dated October 20, O’Leary forecast European airfares would rise 10% or 15%, and possibly 20%, over the next year. He linked his forecast to a decline in available seats resulting from airline bankruptcies and acquisitions. In his latest remarks, he put the potential increase at 15% to 20% and said weak European hedging could persist through summer 2027.