As Iran war drags on, airlines pull back on fuel hedges and warn on rising fares

AirAsia CEO Tony Fernandes says the Malaysian budget carrier was mostly done with hedging and was budgeting for 12 months of high oil prices.

LONDON/HONG KONG – With jet fuel prices at roughly double their levels before the Iran war, airlines are growing increasingly reluctant to lock in future fuel costs through new hedges, warning instead of steep fare increases to offset higher fuel bills.

Hedging allows airlines to lock in future fuel prices, helping shield them from increases and providing greater certainty over costs. But some programmes require premiums, collateral or other costs, while airlines that hedge at current elevated prices risk being locked into expensive fuel if geopolitical tensions ease and prices retreat.

As the conflict in the Middle East enters its ninth month, the strategy shift means fliers globally will likely pay far higher air fares as carriers lose their hedging protection, testing consumer willingness to shell out more for travel.

“Most hedging is finishing,” AirAsia CEO Tony Fernandes told Reuters on Oct 9, adding that the Malaysian airline was budgeting for 12 months of high oil prices and had “given up trying to predict” how geopolitical tensions would evolve.

“So everyone’s going to be exposed. There’s only one way or two ways of dealing with that: cut costs or raise fares.”

Finland’s Finnair, which said earlier in October that high fuel costs had fed through to ticket prices, has stopped adding new hedges as fuel costs surged in 2026. It has an average hedging ratio of 34% for 2027.

“With such high prices, how do you then lock in low prices again?“ finance chief Pia Aaltonen-Forsell said on Oct 27. “If we add right now, it’s more expensive.”

Jet fuel accounts for between 30% and 40% of airlines’ costs, with European and Asian carriers historically hedging more of their fuel needs than US rivals, which largely abandoned the practice after costly bets on oil prices backfired.

“You have stability of cost when you hedge,” said Jeffrey Goh, managing director at Alton Aviation, adding that it remained a bet on prices rising – and could backfire. “You have to look at the forward curve and predict how fast it might go down.”

The pressure could intensify next year as hedges put in place before the war expire, exposing airlines more fully to current fuel prices.

“None of the European airlines, including Ryanair, are well-hedged until summer of 2027, so I think you’re going to have to see air fares rise by 15% to 20%,” Ryanair CEO Michael O’Leary told reporters earlier this month.