The global aviation industry is facing growing uncertainty as airlines struggle to predict the future direction of oil prices amid prolonged geopolitical tensions in the Middle East. With aviation turbine fuel (ATF) prices remaining significantly higher than pre-conflict levels, several airlines are reconsidering their traditional fuel-hedging strategies, raising concerns that passengers could face another round of airfare increases.
According to a Reuters report published on October 28, 2026, airlines across Europe and Asia are becoming increasingly reluctant to lock in future fuel prices because current market rates remain exceptionally high. The situation has created a difficult choice for carriers: accept unpredictable fuel expenses, reduce operating costs or transfer a larger portion of the burden to passengers through higher ticket prices.
Why Airlines Are Moving Away From Fuel Hedging
Fuel hedging is a financial strategy that allows airlines to secure fuel prices in advance through financial contracts. It helps carriers protect themselves against sudden increases in oil and jet fuel prices, making it easier to plan operating budgets.
However, fuel hedging also carries risks. When airlines lock in fuel at elevated prices and market prices subsequently fall, they may end up paying more than competitors purchasing fuel at prevailing market rates.
The current geopolitical situation has made this decision particularly complicated. With jet fuel prices reportedly around twice their levels before the Iran conflict, airlines are finding it increasingly difficult to identify an appropriate price at which to secure future fuel supplies.
AirAsia CEO Tony Fernandes told Reuters that the airline had stopped trying to predict how geopolitical tensions would evolve and was budgeting for another 12 months of elevated oil prices.
Finnair has also stopped adding new fuel hedges as the cost of securing fuel at current market levels remains high. The airline reported an average hedging ratio of 34 per cent for 2027.
These developments suggest that airlines are becoming more cautious about committing to long-term fuel prices when market conditions remain unpredictable.
Jet Fuel Accounts for Up to 40% of Airline Operating Costs
Aviation turbine fuel is among the largest expenses for commercial airlines, typically accounting for approximately 30 to 40 per cent of their total operating costs.
Even a relatively small increase in fuel prices can significantly affect airline profitability, particularly for low-cost carriers operating on thin margins.
Higher fuel expenses can affect several areas of airline operations, including:
Ticket pricing: Airlines may increase base fares or introduce additional fuel surcharges.
Route profitability: Less profitable routes may become financially unsustainable.
Flight frequency: Carriers may reduce services to control operating expenses.
Fleet utilisation: Airlines may prioritise aircraft and routes offering better fuel efficiency.
Financial performance: Higher expenses can reduce operating margins and increase losses.
The pressure is particularly significant for airlines with limited financial flexibility or insufficient fuel-hedging protection.
Ryanair Warns of Possible 15–20% Airfare Increases
One of the strongest warnings has come from Ryanair CEO Michael O’Leary, who indicated that European airfares could rise by approximately 15 to 20 per cent by summer 2027 as airlines become more exposed to higher fuel prices.
Although Ryanair had hedged around 80 per cent of its jet fuel requirements for the financial year ending March 2027, the airline has stopped adding new hedges.
This means that once existing contracts expire, the airline could face greater exposure to prevailing market prices.
Other European carriers are also adjusting their strategies. Lufthansa has reduced capacity on selected routes to manage the impact of fuel expenses, while Finnair has adopted a more cautious approach towards new hedging arrangements.
However, increasing ticket prices is not always an easy solution.
Norwegian Air Shuttle recently had to reverse some fare increases introduced after the Iran conflict because passengers were unwilling to pay the higher prices.
This highlights the challenge facing airlines: they need to recover rising expenses without discouraging customers from travelling.
US Airlines Face a Different Fuel-Hedging Challenge
Unlike several European and Asian carriers, many major US airlines have historically maintained limited exposure to fuel-hedging programmes.
American Airlines, United Airlines, Delta Air Lines, JetBlue and Allegiant have no material fuel-hedging positions.
Southwest Airlines also ended its long-running fuel-hedging programme in 2025, while Alaska Airlines and Hawaiian Airlines have closed out their remaining positions.
This means many US carriers are directly exposed to fluctuations in fuel prices.
The recent increase in aviation fuel expenses has already affected their financial outlooks, with Delta, United and Southwest reporting pressure on earnings expectations.
The difference in hedging strategies across regions demonstrates that there is no single approach to managing fuel-price volatility. Airlines must balance financial protection against the possibility of locking themselves into expensive fuel contracts.
What Does This Mean for Indian Airlines and Passengers?
The impact of rising aviation fuel prices is particularly relevant to India, where fuel remains one of the biggest expenses for domestic airlines.
Indian carriers are already dealing with higher aviation turbine fuel prices, currency depreciation and operational disruptions caused by geopolitical developments in West Asia.
Air India and Air India Express have introduced fuel surcharges on domestic and international routes, while Akasa Air has also revised its passenger charges.
IndiGo is facing similar financial pressure. For the September quarter of FY27, the airline reported a consolidated net loss of Rs 1,879.1 crore, while its fuel expenses increased by 67.2 per cent year-on-year.
The weakening Indian rupee adds another challenge because several airline expenses, including aircraft leasing, maintenance and fuel-related payments, are linked to the US dollar.
According to ICRA, Indian airlines could continue facing elevated operating costs in the near term, making an immediate reduction in ticket prices difficult.
For passengers, this could mean higher base fares, additional fuel surcharges and fewer inexpensive ticket options, particularly during peak travel periods.
Will Airfares Continue Increasing in 2027?
The future direction of airfares will largely depend on how geopolitical developments influence global energy markets.
If tensions in the Middle East continue, airlines could remain exposed to elevated fuel prices even after their existing hedging contracts expire.
However, a reduction in geopolitical tensions could bring some relief to airlines and potentially improve their ability to manage fuel expenses.
The challenge is that airlines cannot simply assume that fuel prices will decline. Committing to expensive hedging contracts today could create losses if market prices fall tomorrow.
Consequently, airlines may increasingly rely on a combination of selective fare increases, capacity adjustments, operational efficiency and cost-control measures.
For travellers, the coming months could bring a more expensive air travel environment, especially on international routes and destinations affected by longer flight paths.
Conclusion
The aviation industry’s relationship with fuel prices is entering a period of significant uncertainty. Traditional fuel-hedging strategies, which once provided airlines with a degree of financial stability, are becoming more difficult to implement when oil markets are influenced by unpredictable geopolitical developments.
As existing fuel contracts expire and airlines become increasingly exposed to market fluctuations, passengers could ultimately bear a substantial portion of the additional costs.
Whether through higher ticket prices, fuel surcharges or reduced flight availability, the consequences could be felt across the global aviation network.
For now, airlines are preparing for a prolonged period of uncertainty, and affordable air travel could become increasingly difficult to maintain if fuel prices remain elevated.