LondonBritish Airways’ owner hedged its summer fuel supply.
Britain’s International Airlines Group expects 2026 fuel costs of €9 billion — €2 billion above forecast — from Iran war disruptions.
The group’s chief executive Gallego warned Middle East disruption could tighten global jet fuel availability once summer hedges expire.
Sources: Financial Times News, Reuters, The Independent
WHY AIRLINES HEDGE
Fuel is 25-30% of an airline's operating cost — the single largest variable expense. Airlines buy futures and swaps to lock in prices months ahead, trading upside for predictability. When hedges expire mid-crisis, the airline becomes a price-taker overnight.
THE CRACK SPREAD
Jet fuel is not crude. Refiners buy crude and sell distillates — diesel, jet fuel, gasoline — and the margin between them is the crack spread. Jet fuel typically trades $15-25 above Brent per barrel; in supply shocks the spread widens faster than crude itself, because jet is harder to substitute than gasoline.
THE SINGAPORE BENCHMARK
Asian jet fuel pricing centers on the Singapore kerosene benchmark, not a Western index. Roughly 40% of global jet fuel trades through Singapore's storage and blending complex. A Hormuz disruption hits Asian supply first; European carriers like BA pay the spillover when arbitrage flows reverse.
THE 1990 PRECEDENT
During Iraq's invasion of Kuwait, jet fuel rose 130% in eight weeks. Pan Am, already weakened, never recovered and filed for Chapter 11 in January 1991. Eastern Air Lines collapsed the same month. Fuel shocks don't kill healthy airlines — they kill the marginal ones, and reshape the industry around the survivors.
WHY GULF DISRUPTION HITS LONDON
About a fifth of global jet fuel either originates in or transits the Persian Gulf. Heathrow's long-haul fleet — A380s, 777s, 787s — burns the most fuel per departure of any aviation segment. Premium long-haul, BA's profit center, is also its largest fuel exposure.
THE HEDGE CLIFF
Hedges are dated contracts. When summer 2026 hedges expire, IAG rolls into whatever the forward curve looks like that day. If Brent is still elevated, the new hedges lock in pain for another year — the cost shock arrives not at the moment of crisis but at the next rollover.