US airlines long ago abandoned the practice of hedging fuel costs. With oil prices soaring in the wake of the U.S. and Israeli attacks on Iran, both countries could be considering a major hit to their profits in the event of a protracted conflict in which prices continue to rise for months.
Jet fuel prices have increased 15% over the past week. This is a new challenge for an industry already dealing with the fallout from a growing conflict that has seen more than 20,000 flights canceled and thousands of passengers stranded.
Fuel is the second-largest expense for airlines after labor and typically accounts for one-fifth to one-fourth of operating costs, but U.S. airlines have largely stopped hedging that cost over the past two decades.
Southwest, which had been active in hedging in the past, abandoned the trade in 2025, citing high costs and unreliability. European and Asian companies such as Air France KLM Royal Dutch Airlines and Cathay Pacific maintain active hedging books.
Hedging can protect airlines from rising fuel costs through the use of derivative contracts. But that could backfire if prices fall, exposing carriers to above-market interest rates on swaps, a type of hedging arrangement that has come under fire for U.S. carriers in the past.
Without hedging, airlines are exposed to a prolonged period of high jet fuel prices, which currently average $2.83 per gallon, according to the Oil Price Information Service. On Thursday, spot fuel traded on the U.S. Gulf Coast soared to $4.12 a gallon, the highest since June 2022, according to S&P Global Energy’s Platts. Delta Air Lines said in its annual report that a 1 cent increase in the cost of jet fuel per gallon would increase fuel costs by about $40 million annually. For American Airlines, the increase will be about $50 million and for Southwest Airlines, it will be $22 million, according to regulatory filings.
American Airlines used about twice as much fuel as Southwest Airlines in 2025, “as a result of our fleet size and overall flight levels relative to Southwest Airlines,” an American Airlines spokesperson said. TD Cowen on Monday estimated that United’s March quarter earnings per share (EPS) will be in the range of 5 cents and 22 cents at current jet fuel prices, well below United’s January adjusted EPS forecast of $1 to $1.50. United declined to comment.
According to calculations by Reuters, these four U.S. airlines collectively expect to pay $5.8 billion in additional fuel costs if jet fuel prices remain at these high levels throughout the year, after years of falling costs.
profit hit
The hit to profits will depend on the duration of the dispute and whether individual airlines can offset higher costs. Some companies may be able to increase ticket prices as they rely more on premium cabins and corporate travelers.
“We’re fairly confident that airlines will continue to operate unhedged in the U.S. and look to pass costs on to end consumers (if fuel inflation persists and only if necessary),” Morgan Stanley analyst Ravi Shankar said. Given the fluctuations in jet fuel prices over the past year, whether European airlines can save money on fuel will depend on which prices they hedge at, Shankel said.
Airlines like Alaska Airlines and JetBlue may struggle to cushion cost shocks because they serve competitive domestic markets and have low premium income. American Airlines caters to fare-conscious leisure travelers, and its short-haul routes use more fuel because of their frequent takeoffs and landings. JetBlue and Alaska did not respond to requests for comment.
Delta has a capacity buffer of about 190,000 barrels per day, nearly three-quarters of Delta’s fuel consumption, thanks to a subsidiary-owned refinery in Pennsylvania. This eliminates the company from paying refining margins, or the profits that another refiner makes from the difference in the price of crude oil and refined jet fuel.
Still, this doesn’t insulate Delta from oil price fluctuations. The airline did not respond to requests for comment.
Benchmark U.S. crude oil soared above $85 a barrel Friday morning, after closing at its highest since July 2024 on Thursday.
(Reporting by Shivansh Tiwary in Bengaluru and Doinsola Oladipo in New York; Additional reporting by Nicole Zhao; Editing by Sayantani Ghosh and David Gaffen)
