Airline Fuel Hedges Expire as Jet Fuel Stays Near $148

Airlines across Asia-Pacific are losing the fuel hedges that shielded them through the first months of the Iran war. Carriers must now decide whether to lock in costly new cover or take on more risk, and passengers will probably pay more either way. Industry executives told Reuters that the squeeze is sharpest in Asia, though airlines worldwide face the same dilemma.

Hedges Expire as Prices Stay Elevated

Jet fuel in Singapore, the region’s benchmark, trades at about $148 a barrel, or roughly RM603. That price sits below the near-$180 peak of late October, yet it remains far above the $85 level that prevailed before the conflict began in late February. Reuters reported that jet fuel in Asia now costs about 75% more than it did before the war.

The hedging contracts that carriers struck at pre-war prices are now running out, which leaves their earnings more exposed to swings in crude. Airlines that renew their cover must accept today’s elevated prices, while those that skip it risk paying even more if prices climb. Neither option looks comfortable.

Fuel’s weight in airline budgets shows why the choice matters so much. Wong Hong, director general of the Association of Asia Pacific Airlines, said jet fuel now makes up 33% of an airline’s operating costs. Before the war, the International Air Transport Association put that share at 25%.

Hong said airlines facing the expiration of their latest hedge contracts confront a “very, very tricky dilemma.”

Executives Split on Where Prices Go

Airline leaders disagree about whether today’s prices will last, and that disagreement shapes how they approach new hedges. Air Astana, based in Kazakhstan, takes the most pessimistic view. Its chief executive told Reuters the airline expects elevated costs to persist.

“Our view is that we are facing a new normal where the fuel price is there to stay at the levels that we see more or less today,” the chief executive of Kazakhstan’s Air Astana told Reuters.

That outlook supports a pro-hedge stance, since locking in a price insures against further increases. Not everyone welcomes it, however, because current price levels make new cover expensive. Buying protection near $148 a barrel means paying a steep premium for safety.

Japan Airlines sees the market differently. Senior managing executive officer Ross Leggett told Reuters that he expects prices to move in cycles rather than stay high.

“We still think it will be cyclical. It’s going to go up and down,” Japan Airlines senior managing executive officer Ross Leggett told Reuters.

Despite that view, Japan Airlines is budgeting for a worst-case scenario with jet fuel at $160 per barrel. That figure matches what the airline paid for fuel between April and September. According to the reports, ANA also expects prices to fluctuate or stabilize rather than climb indefinitely.

Fuel Bills Cut Into Profits

The financial damage already shows up in airline results. Singapore Airlines saw its fuel bill jump 56%, which cut its operating profit by 29% even as the carrier posted record revenue. The result shows how quickly higher fuel costs can erase gains from strong demand.

Airlines everywhere struggle with the war’s impact on jet fuel prices. Sharp drops in profitability and plans to raise ticket prices rank among the first-order effects. Carriers are weighing higher fares and new fuel surcharges to recover part of the added expense.

Those moves carry their own risk. Higher fares and surcharges could dent travel demand at the moment airlines need full planes to offset costs. A carrier that raises prices too aggressively may lose the passengers it needs, while one that holds back absorbs the full hit to its margins.

Ripple Effects for Markets and Inflation

The expiring hedges matter well beyond airline boardrooms. As cover rolls off, airline earnings become more sensitive to crude, which keeps pressure on airline stocks even after this week’s pullback in oil. Any renewed jump in Brent on Middle East shipping risk would hit margins harder, especially in Asia, where fuel’s share of costs has climbed to about a third.

New hedging could also move the oil market itself. If airlines lock in fresh cover at current prices, the added demand could support the deferred part of the oil curve. That would link a corporate risk decision directly to futures pricing further out.

Consumers and policymakers feel the effects too. Higher fares and new surcharges add to inflation pressures that already keep central banks hawkish, which supports the case for higher-for-longer interest rates. In that sense, the airline hedging dilemma feeds into a broader debate about prices and borrowing costs.

A Dilemma With No Easy Answer

Airlines now stand at a decision point with no clearly safe path. Hedging at about $148 a barrel locks in costs that remain roughly 75% above pre-war levels, while staying unhedged leaves carriers open to another spike like the one that approached $180 in October. Executives who believe in a new normal lean toward cover, and those who expect cycles lean toward patience.

Which camp proves right will shape airline profits, ticket prices, and the inflation outlook in the months ahead. For now, the one point of agreement is that the era of cheap pre-war protection has ended. Airlines must choose how much of today’s high price they are willing to lock in.