Jet fuel prices

It starts with the market

Jet fuel is kerosene, refined from crude oil and traded like any other commodity. The benchmark the industry quotes is the US Gulf Coast spot price, which the U.S. Energy Information Administration publishes every trading day. It moves with crude oil but not in lockstep: when refineries earn more for jet fuel than for their other products, jet fuel climbs faster than oil. That gap is the refining margin charted above.

Then the region

Fuel costs a little more where it travels further from the refinery or where supply is tighter. Each IATA region carries a differential on top of the benchmark: North America +0%, Middle East & Africa +2%, Asia & Oceania +2%, Europe & CIS +4% and Latin America +8%.

Then the airport

Getting fuel into a wing costs money too: the hydrant system under the apron or the truck that drives out to the aircraft, the into-plane service and the airport's throughput fee. A major hub spreads those costs over thousands of departures and a small field cannot, so the airport adds between at the busiest hubs and at the smallest fields.

Every airport page shows its own price today, how it is built and its last 90 days. The market price is real; the regional and airport parts are our model of what those costs typically are.

Why airlines hedge

Fuel is a quarter to a third of an airline's costs, and its price can double within a year. Tickets are sold months before the flight, so an airline that bought all its fuel at the day's price would only learn what a flight cost after the seats were sold. Hedging fixes part of the fuel bill in advance so the business can be planned.

How it works

• Swaps. The airline agrees a fixed price with a bank for a volume of fuel over the coming months. If the market rises above it, the bank pays the difference; if it falls below, the airline pays it. Either way the airline's price is fixed.
• Call options. The airline pays a premium for the right to buy at a ceiling price. It is protected from spikes and still benefits when prices fall, at the cost of the premium.
• Collars. A ceiling and a floor together. Selling the floor pays for the ceiling, so the protection costs little, but the airline gives up the savings below the floor.

Most airlines hedge part of the next 12 to 24 months, more for the months just ahead and less further out, and buy the rest at the market price. Some hedge heavily and some hardly at all: a well-hedged airline has the advantage when prices spike and the disadvantage when they fall.

On JetStream

Every airline hedges 60% of its fuel at the average price of the last 90 days and buys the rest at the day's market price. That blend is the "airlines pay" price. Today:

So a spike reaches the books gradually, and so does a fall. Airlines also pass part of a fuel move on through fares and surcharges: fares follow 50% of the gap between today's fuel price and its one-year average, and are running 15.6% above that level now. Expensive fuel squeezes an airline's margin; it never stops anyone flying, and pilot pay never depends on it.