Airlines Feeling the Burn on Fuel

All six major U.S. airlines have now filed their first-quarter earnings releases, and to exactly zero surprise, all six reported sharply higher fuel costs that pummeled their operating costs.

Casual observers of the industry might wonder, “OK, that stinks; but don’t these guys offset price spikes through hedging instruments?”

Users of Calcbench, however, will already know the answer: no, they don’t, and the airlines are likely to suffer with painfully high fuel costs for quite some time.

Figure 1 maps out the average cost per gallon for the six largest U.S. airlines for the last nine quarters.

Figure 2 shows total fuel expense as a percentage of total operating revenue.

The spikes we see for Q1 2026 in both charts are no surprise; average cost of jet fuel per gallon has more than doubled since war began. Figure 2, however, shows us that some firms are feeling that price pressure much more than others. JetBlue ($JBLU) and Alaska Air ($ALK), for example, both have much steeper increases than others such as Southwest ($LUV), American (AAL) and United ($UAL). 

Now the airlines will need to offset those fuel cost increases somehow; either through price increases of their own, lower operating income (gasp!), or some combination of both.

Hedging Against Price Increases

In theory, the airlines could avoid fuel cost surprises by purchasing derivatives to hedge against higher costs. Pay a bit more money in hedging instruments quarter after quarter, but pay less money through the nose if fuel costs suddenly spike. 

So which airlines actually do that? None of them, apparently.

One can find this information simply by calling up the airlines’ quarterly reports on our Disclosures & Footnotes Query page and then selecting the “Derivatives and Hedging” footnote choice from the pull-down menu on the left side of your screen. 

You won’t find much.

For example, JetBlue had this to say in its 2025 Form 10-K, filed on Feb. 26:

The Company has historically aimed to reduce volatility in operating expenses through its fuel hedging program. However, based on higher fuel hedging premium costs over time and other factors, the Company has discontinued its fuel hedging program in 2025 and does not intend to add additional fuel derivatives at this time.

JetBlue hasn’t yet filed its 10-Q for first-quarter 2026, and perhaps it will have something else to say in its new filing. Then again, fuel prices are already up, so any new hedging instruments now will be more expensive. 

Southwest reported much the same in its first-quarter 10-Q, filed on April 23:

The Company has historically aimed to reduce volatility in operating expenses through its fuel hedging program. However, based on higher fuel hedging premium costs over time and other factors, the Company discontinued its fuel hedging program and terminated its remaining portfolio of fuel hedging contracts, which were scheduled to settle through 2027, to effectively close its fuel hedging portfolio during 2025. The Company does not intend to add additional fuel derivatives.

Southwest did, however, report the income it received while liquidating those hedges. The value of those hedges had been reported in AOCI (accumulated other comprehensive income) from quarter to quarter; but as Southwest closed out the hedges, those amounts were reclassified from AOCI into expenses or operating revenue on the income statement. See below:

The other airlines don’t even report a derivatives footnote at all, or make any other substantive disclosure about hedging. 

So, yeah. Fuel costs are sky high and squeezing the airlines. That’s not likely to change any time soon.