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5:00Hedging an Airline's Fuel Bill
Fuel is roughly a quarter of an airline’s costs, and the price can double in a year. So the treasury team buys insurance on oil it has not even burned yet, using derivatives most passengers never hear about.
An airline sells tickets months ahead at fixed prices, but pays for jet fuel at whatever the market charges on the day it flies. Fuel is around 25–26% of operating costs (IATA put the 2025 industry bill near $236bn, about 25.8% of costs), so a sharp move in oil can wipe out a thin margin. Hedging does not try to predict prices, it converts an unknown future cost into a known one.
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