Jet fuel is expensive. $4.16 per gallon on average in the U.S. yesterday, according to Argus.

If you’ve been to the gas pump lately, that doesn’t sound crazy (that’s $1.10 USD per liter, for those of you on the metric system). But for airlines, $4.16 is concerning, particularly when the average price paid in Q4 2025 was about $2.30 a gallon.

So why not protect the airline against the spikes in fuel prices? Fuel insurance, as it were.

Many do. We call it fuel hedging in the business, but it’s not as straightforward as it may seem. Despite some European airlines being hedged for over 80% of their fuel in 2026, it doesn’t mean there are fuel tanks sitting around full of easyJet’s fuel for the year.

Traditionally, airlines purchase futures contracts. In essence, they purchase the right to buy fuel at a given price. If they buy at $3.00 and the price of fuel goes up to $4.00, the airline saves on its fuel prices. But someone is still paying that $1.00 difference, and that someone is not happy in that scenario.

While airlines buy futures contracts, someone is writing and selling that contract. They could lose a lot of money. For instance, any institution that would have sold Delta Air Lines fuel hedges for this quarter would have sold the contract close to the $2.30 it was, ultimately paying the $4.16 it is today. That could be a $2 billion loss. Not many financial institutions can carry that level of risk.

So, airlines tend to hedge fuel by purchasing crude oil contracts. While it is highly discouraged for airlines to fill fuel tanks with crude oil, the price of jet fuel and crude oil tend to move in a very similar fashion. This becomes a true cross hedge in that any time the price of fuel increases and the airline has to pay more, the contracts they purchased for crude oil would have also increased, offsetting the increases. Of course, the airline never takes the crude oil, but rather sells the value of the contracts (for which the writer of the contract is likely looking to buy itself out of the liability).

And just like that, much of the fuel price increases were absorbed by the hedging strategy. Fuel costs stay consistent(ish), and geopolitical events like we are currently experiencing are less impactful to the bottom line.

But not all airlines hedge. Many do not. In fact, no major airlines in the U.S. hedge fuel. They used to, but no more. The lone holdout for years was Southwest, but the last fuel hedges for the airline just rolled off recently (talk about timing.)

So why not hedge? Airlines in the U.S. are paying market rates ($4.16 / gallon) while many airlines in Europe are still paying the old $2.30.

Firstly, hedging is expensive. You still must pay a premium over current prices to lock in future rates. That can be hundreds of millions of dollars.

Also consider that fuel prices may not go up. Sounds great, right? It is, unless you locked in your fuel prices at a higher price. That means you’re paying more for fuel than your competitors.

There are other challenges, as well. Purchasing futures contracts in the much more liquid crude oil market isn’t the same as purchasing jet fuel contracts. The prices of the two move similarly, but not identically. In the current crisis, crude oil has increased by about 67%, while jet fuel has increased 80%. (Behold, the crack spread.) Those expensive contracts will pay out in this instance, just not enough to cover the greater increase in fuel prices. (The alternative of buying jet fuel contracts, specifically, presents other challenges, including finding a seller and a subsequent buyer in the much less liquid market.)

Which brings us to the competitive aspect. For airlines in Europe, if you’re not hedged, your competitors are. Even if the financials don’t make sense over the long run, you could find yourself at a distinct disadvantage to your competitors at a time when things have gone sideways (like today).

But for the airlines in the U.S., the lack of any hedging works opposite. There is little reason to pay a premium to protect yourself when all of your competitors are in the same boat. Further, the pesky crack spread tends to widen during the very fuel price spikes you were paying good money to hedge, meaning your hedge only covered a portion of what you expected when purchased.

If you’re creative, you buy the refinery that’s responsible for the crack spread. Delta Air Lines stands out as the only airline to own a fuel refinery that works (kind of ) like a hedge. Fuel prices go up, and the refinery makes more money at a time when your fuel bill also goes up. Fuel prices go down, and the refinery - well, it doesn’t lose as much as a traditional hedge, potentially still earning a small profit. It’s still not a perfect hedge. Oil refineries are expensive and bring with them a lot of technical risk. Airlines are in the business of burning fuel, not refining it.

And yet, Delta pulls it off. Mostly. Sure, there is frustration from Wall Street during low fuel prices about the refinery. It’s expensive to run and is typically a drag on the earnings. But it does act as a proper hedge that accommodates the crack spread.

So why don’t other airlines buy refineries? There aren’t many (any) to buy, they’re expensive, the risk is higher, they’re expensive, you still need to find buyers for the other fuels that come from the refinery, oh, and did we mention they are expensive?

And so Delta remains the interesting outlier. Hedged, but not really.

Which brings us back to the original question: should an airline hedge?

The answer, in our minds, can be distilled into one oversimplified question: can your competitors put you out of business if you don’t?

In Europe, the answer is yes to both. In North America, the fuel playing field is both even and more volatile.

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