Fuel hedging is a way for an airline to reduce the effect of future fuel-price changes on some of the fuel it expects to buy. The airline uses financial contracts whose gains can partly offset higher fuel bills; if prices fall, those contracts may instead cost money or reduce the benefit of cheaper fuel. Hedging manages uncertainty—it does not guarantee savings or secure a physical fuel supply.
Why fuel prices matter to airlines
Fuel is typically one of an airline’s largest operating expenses, so sharp price changes can complicate budgets and affect expected costs. The International Air Transport Association (IATA) forecast that jet fuel would account for 31.4% of airline operating expenses in 2026, up from 25.4% in 2025. IATA’s 2026 outlook also forecast global airline fuel costs of $350 billion in 2026, compared with $252 billion in 2025. These are industry forecasts, not figures for every airline or guarantees of actual spending. IATA’s June 2026 airline industry outlook
In that same outlook, IATA forecast an average jet-fuel price of $152 per barrel in 2026 versus $90 in 2025, and a 2026 average jet-fuel crack spread of $57 per barrel. The crack spread is the difference between jet-fuel and crude-oil prices. When jet fuel rises faster than crude, an airline hedging crude may not be protected from the full increase.
How an airline fuel hedge works
An airline estimates how much fuel it expects to consume and may enter into contracts linked to fuel or a related commodity. If the benchmark price rises, a contract may gain value and help offset some of the higher price the airline pays its supplier. If the benchmark falls, the contract may lose value, leaving the airline worse off than if it had simply bought fuel at the lower market price.
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Common instruments include swaps, forwards, futures and options. Their terms differ: a swap or forward can provide more price certainty while limiting the benefit of a market decline; options can provide a different balance between protection and participation in falling prices, often in exchange for a premium or other contract terms. No instrument makes the airline’s entire fuel bill certain unless the relevant exposure, benchmark, timing and amount all line up.
Jet fuel versus proxy benchmarks
A hedge may reference jet fuel directly, but airlines also use more actively traded benchmarks such as crude oil or gas oil. These proxy markets can offer liquidity, especially for longer periods, but their prices do not always move in step with the jet fuel an airline actually buys. IATA has warned that airlines hedging crude remain exposed to increases in the crack spread.
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Lufthansa Group’s 2025 annual report says its fuel hedges were mainly based on gas oil and crude oil, with combinations of options used for market-liquidity reasons. It describes a hedging horizon of up to 24 months. Southwest Airlines’ 2022 annual report says it used WTI and Brent crude and refined-product instruments, noting limited opportunities to hedge jet fuel directly over longer time horizons because it is not widely traded on an organized futures exchange. Those disclosures illustrate possible approaches; they do not describe every carrier’s current contracts. Lufthansa Group financial reports Southwest Airlines annual reports
Why airlines hedge—and what the trade-off is
The main purpose is to make part of a large, volatile expense more manageable. More predictable costs can help with budgets, cash planning, fares and schedules. A hedge is a risk-management decision, not a promise to reduce the airline’s average fuel cost or increase its profits. The airline gives up some potential benefit when prices fall, or may pay for protection that turns out not to be needed.
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Coverage is often partial and spread across future periods. An airline can leave some expected fuel purchases unhedged, and it may choose options or other structures that preserve some benefit if prices decline. Lufthansa Group says its stated aim is to reduce fuel-price fluctuations while accepting incomplete protection against rising prices in order to retain benefits from falling prices.
How much do airlines hedge?
It varies by airline, market conditions, available contracts, management policy and applicable rules. IATA estimated in June 2026 that airlines globally had hedged roughly one third of expected fuel consumption for 2026. That is a global aggregate, not a standard share for each airline; IATA said the hedges can smooth short-term cost volatility but do not remove exposure to sustained price increases. IATA’s June 2026 outlook
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For comparison, Lufthansa Group’s 2025 annual report stated that its hedges covered about 76% of forecast 2026 fuel requirements and around 29% of forecast 2027 requirements as of December 31, 2025. It gave an 85% target hedging level for Lufthansa Passenger Airlines. These company-specific figures have a different scope and reporting date from IATA’s global estimate, so they should not be treated as directly comparable. Lufthansa Group financial reports
Hedge positions change as contracts mature, forecasts change and new decisions are made. IATA’s historical regional chart reported variation in hedging across carriers and regions for H1 2019, with some data extending into July–September 2019; those figures are historical, not current positions. IATA’s airline industry economic reports
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What fuel hedging cannot protect an airline from
Falling prices and imperfect price offsets
If fuel prices fall after an airline has taken a position that locks in a higher effective price, the airline can lose on the contract or miss some of the savings available at market prices. A proxy hedge can also perform differently from the airline’s actual fuel bill. Southwest’s 2022 annual report warns that derivatives can result in hedging losses and effectively higher-than-market fuel prices. Southwest Airlines annual reports
Changes in actual fuel use
Hedges are often sized against forecast consumption. If actual fuel use differs from that forecast, the contract may cover too much or too little relative to the airline’s needs. This mismatch can arise because of changes in operations or because the original estimate does not match eventual consumption.
Physical availability of fuel
A financial hedge changes exposure to prices; it does not, by itself, arrange a delivery or ensure that an airport has fuel available. Lufthansa Group states that its derivatives settle through payments and do not result in physical deliveries. Southwest discusses physical supply and timely delivery separately from its price hedging. Lufthansa Group financial reports Southwest Airlines annual reports
Contract and reporting risks
Derivatives create counterparty, collateral and valuation considerations. Their accounting treatment is also separate from their economic purpose: hedge accounting determines how qualifying hedges are presented in financial statements, not whether a contract reduces the airline’s underlying price exposure. A hedge that does not qualify for the desired accounting treatment, or that offsets exposure imperfectly, can add volatility to reported earnings. IATA’s explanation of airline fuel hedging Southwest Airlines annual reports
Can fuel hedging make airline tickets cheaper?
Not necessarily. Hedging can make some fuel costs more predictable, but it does not dictate fares. Airlines set prices in a competitive market and may respond to costs, demand and other business conditions in different ways. A hedge does not guarantee lower ticket prices, and a loss on a hedge can offset some of the benefit of falling fuel prices.
Quick Recap
What to remember
- Fuel hedging uses financial contracts to reduce, not eliminate, exposure to future fuel-price changes.
- Its value depends on the contract, benchmark, coverage and timing, as well as how actual fuel prices and consumption evolve.
- A financial hedge is distinct from buying or receiving fuel, and hedge accounting is distinct from the economic risk-management decision.
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