Airlines See Profits Rise, but Jet Fuel Hedging Costs Surge
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Global airlines reported stronger-than-expected profits in Q2 2025, driven by robust passenger demand and improved operational efficiencies. However, the surge in jet fuel hedging costs has tempered overall earnings growth and raised concerns about future profitability.
According to data from the International Air Transport Association (IATA), passenger traffic rose 11% year-over-year in the second quarter, nearing pre-pandemic levels in key markets such as North America, Europe, and parts of Asia. Leisure travel remains the main growth driver, while business travel is gradually recovering.
Major carriers including Delta Air Lines, Lufthansa, and Singapore Airlines all posted net income increases ranging from 15% to 22% in their latest earnings reports. Lower labor disruptions and optimized route networks contributed to margin improvements.
Yet, airlines are facing significant headwinds from elevated jet fuel prices and rising hedging expenses. The average price of jet fuel in June stood at $120 per barrel, nearly 18% higher than the same period last year. To mitigate volatility, many carriers entered hedging contracts earlier this year, locking in prices at rates above current market levels.
“While hedging provides budget certainty, the current spike in fuel prices is causing a marked increase in hedging losses,” said Robert Chen, aviation analyst at AeroFinance Research. “This dynamic is squeezing airline margins despite strong revenue performance.”
Delta disclosed a $320 million loss from fuel hedges in Q2, compared to a $150 million gain in the prior year. Lufthansa and British Airways also reported substantial hedging losses, signaling that fuel price volatility remains a major risk factor.
In response, some airlines are accelerating fuel-efficiency initiatives, including fleet modernization and sustainable aviation fuel (SAF) adoption. United Airlines recently announced plans to power 25% of its flights with SAF by 2030, aiming to reduce emissions and mitigate price exposure.
Industry experts caution that while passenger demand is expected to remain robust through the summer, ongoing economic uncertainties and geopolitical tensions could affect discretionary travel and cargo volumes in the latter half of the year.
Freight operations saw mixed results, with global air cargo volumes stabilizing after declines earlier this year. Increased fuel costs and supply chain disruptions continue to pressure logistics profitability.
Investors are closely watching how airlines manage the balance between capital expenditure, cost control, and debt reduction. The sector’s ability to navigate fuel market volatility will be critical in sustaining its post-pandemic recovery momentum.
