US airlines face $11bn fuel hit from Iran conflict
Four of the biggest US airlines risk paying an extra $11bn for jet fuel this year after their decision not to hedge their expected purchases...
Upgrade to get full access to all premium news on Yahoo Finance and get more great articles like this free preview. A Silver or Gold subscription plan is required to access premium news articles. Upgrade Already have a subscription? Sign in Four of the biggest US airlines risk paying an extra $11bn for jet fuel this year after their decision not to hedge their expected purchases left them exposed to soaring prices triggered by the Iran conflict. The price of US jet fuel has soared almost 60 per cent since the closure of the Strait of Hormuz, hitting $3.95 a gallon late last week, according to the Argus US Jet Fuel index, which measures daily spot prices at American aviation hubs.
The price eased to $3.40 a gallon by the end of Tuesday, but the US government has now raised its official forecast for this year’s average jet fuel price to $2.67 a gallon, up 37 per cent compared with last month’s projections. This equates to $11.6bn in extra spending by the four carriers in 2026, according to FT calculations. The four large US carriers — American Airlines (AAL), United (UAL), Delta (DAL) and Southwest (LUV)— will face additional fuel costs of $280mn between them for each week global prices remain at present levels. Fuel is typically among the highest costs for airlines, accounting for about a quarter of spending during normal periods.
“There is huge uncertainty around where and when fuel prices will peak and how long fuel prices will remain elevated,” said Andrew Lobbenberg, an airlines analyst at Barclays (BCS). While European airlines typically hedge jet fuel, American Airlines, Delta and United all scrapped hedging a decade ago, arguing that the long-term costs of the practice outweighed any short-term benefit in the event of a surge. Southwest, which once pioneered the strategy, ended the practice just last year after it paid $157mn in hedging premium costs during 2024. Its chief executive Bob Jordan admitted to investors last year that, with the exception of a couple of years, it had failed to see the benefits.
However, United Airlines chief executive Scott Kirby last week warned that the rises would also have a “meaningful” effect on the carrier’s first-quarter results and that the impact on ticket prices would “probably start quick”. American reported last month that a “one cent per gallon increase in the price of aircraft fuel would increase our 2026 annual fuel expense by approximately $50mn”, equating to more than a billion dollars of extra fuel costs per quarter at the present level. American was more exposed than its main competitors because of its weaker finances, noted Sheila Kahyaoglu, analyst at Jefferies.
Low-cost US carriers, such as Frontier and Spirit, had more cost-sensitive customers and were likely to be more vulnerable to price rises than major carriers with a higher proportion of premium and international passengers, analysts said. Story Continues Raman Singla, a director at Fitch Ratings, said: “North American airlines are largely unhedged, leaving them more exposed to a near-term fuel spike.” Fitch said in Europe, airBaltic was the most exposed of the region’s carriers, with only 6 per cent of fuel hedged over the coming three months, while Turkish Airlines has hedged only 36 per cent for this year.
Wizz Air, Ryanair and Lufthansa have all hedged more than 80 per cent of their purchases for the coming quarter, while British Airways and Air France are also heavily hedged. The four US carriers declined to comment on their exposure to the elevated jet fuel prices. But a person familiar with the thinking of a leading US airline said that “while people remember the savings airlines make on hedges when the price goes up, they tend not to notice the declines, during which companies lose truckloads of money”. Sign up for the Yahoo Finance Morning Brief By subscribing, you are
agreeing to Yahoo's Terms and Privacy Policy Subscribe Dan Akins, an aviation expert at Flightpath Economics, said: “If the carriers had a crystal ball, of course they would have hedged going into this year.” He added: “But if they had hedged for the past 10 or 15 years in order to save money today, it would not have been worth it.” Copyright The Financial Times Limited 2023 © 2023 The Financial Times Ltd. All rights reserved. Please do not copy
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