Airlines curb fuel hedges as jet fuel prices double and fares face increases

Airlines are stepping back from new fuel hedges as jet fuel prices reach roughly twice their levels before the Iran war, The Japan Times reported. Carriers are warning that higher fuel bills could lead to steep fare increases for travelers. Gulf Times also reported that airlines are pulling back on jet fuel hedges and warning about fares.

Hedging allows airlines to set future fuel prices in advance. The Japan Times said that this can help shield carriers from price increases and provide greater certainty about costs. The current shift means airlines are becoming less willing to use that mechanism while fuel remains expensive. The outlet described a risk on either side of the decision.

Airlines that lock in fuel at elevated prices could remain committed to buying it at those prices if tensions ease and fuel costs retreat. Some hedging programs also require premiums, collateral or other costs, adding to the expenses associated with such arrangements. The Japan Times said the conflict in the Middle East had entered its ninth month.

It linked the elevated jet fuel prices to the airlines’ reluctance to make new hedges, and described higher fares as the response carriers are warning about as their fuel bills rise. The account does not specify individual airlines or provide a fare increase figure.

For travelers, the stated consequence is the prospect of steep fare increases as carriers seek to offset higher fuel costs. The outlet also said airlines that move away from hedging lose some protection from further fuel-price increases.

Its account therefore describes two cost concerns: the expenses attached to some hedging programs and the risk of fuel prices falling after airlines commit at elevated levels. The reporting describes a shift in airlines’ approach rather than a single company decision.

Carriers are holding back on new agreements, while warning that higher fuel bills could be passed on through fares. The Japan Times said this could test travelers’ willingness to pay more for air travel; it did not give a specific forecast for ticket prices or say how individual airlines will change their hedging.