U.S. airlines face massive jet fuel bills after abandoning hedging strategy

2026-03-14 - 17:06

A surge in global jet fuel prices linked to the ongoing Iran conflict could cost the four largest U.S. airlines an additional $11 billion this year, according to a report by the Financial Times. The report indicated that American Airlines, United Airlines, Delta Air Lines and Southwest Airlines are particularly exposed to rising fuel costs after opting not to hedge their fuel purchases in recent years, leaving them vulnerable to sharp market fluctuations. Jet fuel prices in the United States jumped by nearly 60 percent following the closure of the Strait of Hormuz, climbing to $3.95 per gallon late last week, based on the Argus US Jet Fuel Index, which tracks daily spot prices at major aviation hubs across the country. Although prices eased slightly to about $3.40 per gallon by Tuesday, the U.S. government has raised its official forecast for the average jet fuel price in 2026 to $2.67 per gallon, representing a 37 percent increase compared with last month’s projection. Based on these revised estimates, the Financial Times calculated, the four largest U.S. carriers could collectively incur an additional $11.6 billion in fuel expenses this year. At current price levels, the airlines face roughly $280 million in additional fuel costs each week. Fuel typically represents one of the largest operational expenses for airlines, accounting for around a quarter of total spending during normal market conditions. Andrew Lobbenberg, an aviation analyst at Barclays, said the industry faces significant uncertainty. “There is considerable uncertainty about when and where fuel prices will peak and how long they will remain elevated,” he noted. Unlike many European airlines, most major U.S. carriers abandoned fuel hedging roughly a decade ago, arguing that the long-term costs of hedging outweighed the benefits during periods of price volatility. Southwest Airlines, which had pioneered the strategy in the industry, ended the practice only last year after paying $157 million in hedging fees in 2024. Southwest CEO Bob Jordan told investors that the company had seen limited financial benefit from hedging in most years. Meanwhile, United Airlines CEO Scott Kirby warned that the surge in fuel prices would have a “tangible” impact on the airline’s first-quarter financial results and could quickly influence ticket prices. American Airlines previously indicated that every one-cent increase per gallon in jet fuel adds about $50 million to its annual fuel costs, meaning current price levels could translate into more than $1 billion in additional fuel expenses per quarter. Analysts say American Airlines is particularly vulnerable due to its weaker financial position compared with its main rivals. Low-cost carriers such as Frontier Airlines and Spirit Airlines may also feel stronger pressure from rising fuel prices because their customers are typically more sensitive to ticket price increases. Raman Singla, director at Fitch Ratings, said North American airlines remain largely exposed to fuel price volatility in the near term due to the lack of hedging protection. In contrast, many European airlines have secured a significant portion of their fuel purchases. Carriers such as Wizz Air, Ryanair and Lufthansa have hedged more than 80 percent of their fuel needs for the next quarter, while British Airways and Air France have also locked in substantial coverage. Despite the mounting concerns, the four major U.S. airlines declined to comment on the potential financial impact of the fuel price surge. Aviation economist Dan Akins of FlightPath Economics said predicting fuel price movements remains extremely difficult. “If airlines could foresee the future, they would have hedged before the start of this year,” he said, noting that long-term hedging strategies often produce mixed results.