Your next flight doesn't have to be so expensive. Here's why

Summary

The Indicator from Planet Money – Episode Summary

Episode Title: Your next flight doesn't have to be so expensive. Here's why
Air Date: March 25, 2026
Hosts: Darian Woods, Waylon Wong
Featured Guests: Jerry Lademan (former CFO, United Airlines), Kerry Tan (economist, Loyola University Maryland)
Main Theme:
The episode explores why airline ticket prices have risen since the onset of the war in Iran, examines the role of jet fuel prices, and investigates fuel hedging—a financial strategy airlines once used to manage costs. The hosts break down why U.S. airlines largely abandoned hedging, what strategies they use now, and what the future could look like for airfare pricing.

---

1. Rising Airfare Costs and the War in Iran

Timestamps: 00:11–00:52

• Context:
  Airfares are spiking amid the ongoing war in Iran, which has disrupted oil markets.
• Key Drivers:
  • Jet fuel is about 20% of airline costs and prices have "shot up more than crude oil, gasoline or diesel." (Waylon Wong, 00:38)
  • Closure of the Strait of Hormuz is causing a “ricochet effect economically,” directly impacting fuel costs and thus ticket prices.
• Notable Quote:

  "You open a browser tab, you look at airfares for a summer vacation, and then you close your laptop and you throw it into the ocean."
  —Waylon Wong, 00:15

---

2. The Anatomy of Jet Fuel Prices

Timestamps: 03:34–04:54

• Impact of Cost Changes:
  • Even one cent change in jet fuel cost means "tens of millions of dollars" more for airlines annually. (Jerry Lademan, 03:34)
  • Fuel prices have doubled to nearly $5 per gallon, causing big financial pressure.
  • Delta CEO: $400 million in extra monthly costs (Waylon Wong, 03:57)
• Key Ingredients:
  • Brent crude price (the global oil market standard)
  • Crack spread: The refining margin, “the profit for the refiners, transportation, and a whole number of other factors... can have its own movements independent of the underlying price of oil.” (Jerry Lademan, 04:26)
  • The crack spread is high partly because Middle Eastern refineries can't ship fuel through the Strait of Hormuz.

---

3. How Airlines Have Managed Fuel Price Volatility

Timestamps: 04:54–07:21

• Traditional Mitigation:
  • Buying more energy-efficient planes
  • Minimizing operational weight
• Fuel Hedging:
  • Financial contracts—futures or options—enabled airlines to lock in fuel prices, smoothing out spikes.
  • Example:

    "It's really viewed as insurance to protect the financials against a sudden spike in jet fuel."
    —Jerry Lademan, 06:46

  • Historical Perspective:
    • American Airlines saved $150 million in 2003.
    • Southwest estimated $3.5 billion in savings between 1998-2008.

---

4. Why U.S. Airlines Largely Abandoned Fuel Hedging

Timestamps: 07:21–09:11

• Rising Costs:
  • Transaction fees and hedging premiums became too expensive.

    "Like any insurance, there's a cost to it... it wasn't worth that expense."
    —Jerry Lademan, 07:32

• Alternative Strategy:
  • U.S. airlines realized they could raise ticket prices to recoup higher fuel costs.

    "The better answer was to, in a fair manner, pass costs on to consumers."
    —Jerry Lademan, 07:57

• Financial Losses:
  • Unexpected oil price drops in the 2010s left airlines “with heavy losses on their hedges.”
  • Quote:

    "Hedging is a rigged game that enriches Wall Street."
    —American Airlines president, cited by Waylon Wong, 08:22

• Market Differences:
  • Southwest continued hedging (and keeping fares low) longer due to price-sensitive clientele, unlike Delta, which caters to less price-sensitive travelers. (Kerry Tan, 08:54)

---

5. What Airlines are Doing Now – And What’s Next?

Timestamps: 09:11–10:23

• Current Situation:
  • As of this episode, none of the major U.S. airlines are actively hedging fuel.
  • International carriers (e.g., Cathay Pacific, Qantas) still hedge but are raising fares and surcharges.
  • “It appears that hedging alone isn’t enough to keep prices low for flyers.” (Waylon Wong, 09:38)
• Future Possibilities:
  • Airlines might revisit hedging depending on how long oil prices remain high.
  • Expert Insight:

    "If you're hedging fuel, you're trying to make a bet that prices are going to go up. But today... it's hard to say whether prices are going to be chronically high."
    —Kerry Tan, 09:49

  • Airlines may try to “ride out a few months of higher oil prices with higher fares or by implementing fuel surcharges. But if the war persists, then all bets are off.” (Darian Woods, 10:07)

---

6. Memorable Moments & Quotes

• "Old habits, huh?"
  —Waylon Wong teasing Jerry Lademan, about still checking oil prices after retiring (03:06)
• "Sometimes when I drive past a gas station, I look at the price... and do some quick mental math.”
  —Waylon Wong, 03:21

---

7. Key Takeaways

• Jet fuel is a huge part of airline costs—small changes have massive bottom-line impacts.
• Fuel hedging once provided stability but became too costly and risky for major U.S. airlines.
• Today’s airlines largely manage by passing costs to consumers or pursuing operational efficiencies.
• Global disruption, like the war in Iran, quickly translates to airfare spikes.
• The industry’s approach may shift if high oil prices prove lasting.

---

For listeners: This episode delivers a quick, clear explanation for why your next flight might cost more—and why “fuel hedging” isn’t likely to save you money anytime soon.

Transcript

[Jerry Lademan]

Npr.

[Darian Woods]

This is the indicator from Planet Money. I'm Darian Woods.

[Waylon Wong]

And I'm Waylon Wong. I think by now it's been familiar exercise since the war in Iran started. You open a browser tab, you look at airfares for a summer vacation, and then you close your laptop and you throw it into the ocean.

[Darian Woods]

Yes, it is a ricochet effect economically about this strait of Hormuz closing and how that's affecting airline prices.

[Waylon Wong]

Yeah, jet fuel accounts for around 20% of a typical airline's costs. And the price of jet fuel has actually shot up more than crude oil, gasoline or diesel. So many people who are shopping for airfares right now are feeling this pain.

[Darian Woods]

Hiking airfares is this obvious lever that airlines can pull when their costs go up. But there's another one that these companies do have at their disposal. It's a strategy known as fuel hedging. Airlines like Cathay Pacific, Luthanza and Qantas do it, but most airlines in the US haven't done it for a decade.

[Waylon Wong]

So today on the show, what is fuel hedging? Why did airlines in the US Stop doing it and what will they do now?

[Sponsor Announcer]

This message comes from Indeed hiring Do it the right way with Indeed sponsored jobs claim a $75 sponsored job credit to get matched with quality candidates@ Indeed.com podcast. Terms and conditions apply. This message comes from Wix. Nothing beats seeing your ideas turn into cold, hard cash. Well, if you use Wix Harmony, you better get used to it. WIX Harmony makes it unbelievably easy to create a fancy new website that's built to sell. Get the perfect blend of AI and drag and drop tools that puts you in control of every detail, plus an AI agent to help you every step of the way. Try it for [e-mail] harmony. This message comes from Capella University. You know that feeling when there's a spark building inside you that you were meant for more? That's your own drive pushing you towards what's next. Capella University gets that with their flexpath learning format, you can set the pace and earn your degree without putting life on pause. You've built experience and know what you're capable of. Now this is your time to turn that momentum into more. The only real question is, what can't you do? Learn [e-mail].

[Darian Woods]

jerry Lademan is an airline veteran. He worked in the industry for around four decades, mostly on the finance side. He was treasurer of Continental Airlines and eventually became the Chief Financial Officer Officer at United Airlines. One constant in his career was looking at oil prices.

[Jerry Lademan]

I've been retired for almost two years. I still check it every day.

[Waylon Wong]

Old habits, huh?

[Jerry Lademan]

Yep. You just get used to. But yes, it is something that on, on any Bloomberg screen I can think of in a, in the treasury department of any airline, there will be on the screen fuel prices.

[Waylon Wong]

Sometimes when I drive past a gas station, I look at the price on the sign and do some quick mental math about how much it'll take to fill my tank.

[Darian Woods]

That's your version of what airline executives are doing.

[Waylon Wong]

Exactly. But they do it on a much bigger scale.

[Jerry Lademan]

The impact for an airline is a lot more than a driver. It's tens of millions of dollars on an annual basis for each movement of just one cent in a gallon of jet fuel.

[Darian Woods]

And the war in Iran is making prices spike more than just a cent per gallon. This week the global average price for jet fuel was creep towards $5 per gallon. That's more than double what it was a month ago.

[Waylon Wong]

The CEO of Delta Air Lines said in an industry conference last week that the spike in fuel prices has generated $400 million in additional costs so far this month. It's a big unexpected hit.

[Darian Woods]

And there are two ingredients in the price of jet fuel. The first is the price of oil, specifically Brent crude, which is the global benchmark. The second ingredient is what's called the crack spread. That's a little oil industry jargon which Jerry explains like this.

[Jerry Lademan]

Think of it like the refining margin, the cost of refining, the product, the profit for the refiners, transportation, and a whole number of other factors. The crack spread can have its own movements independent of the underlying price of oil.

[Waylon Wong]

The current crack spread for jet fuel is also way up compared with last month and last year. One reason is because Middle Eastern refineries that produce jet fuel and other products can't ship food through the Strait of Hormuz.

[Darian Woods]

Now airlines can't control the global price of oil or what's happening with refineries. One notable exception in the US though is Delta. It owns its own refinery through a subsidiary. This vertical integration helps the company save money on refining oil into jet fuel.

[Waylon Wong]

As for other airlines, former United CFO Jerry Latterman says they generally try to keep their fuel costs down by using more energy efficient planes and carrying less weight. But for many years, airlines have also done something called fuel hedging. This practice was common in the US but that changed.

[Darian Woods]

And before we get into why that changed, first we should talk about what fuel hedging is. It involves financial instruments like futures Contracts. You might be familiar with this term from the stock market. Investors that use these contracts agree to buy or sell a certain asset like a stock at a specific price on a specific future date.

[Waylon Wong]

There are futures contracts for all kinds of commodities, including crude oil. So an airline that is fuel hedging might enter into a contract to buy crude oil at a set price in the future. Let's say it agrees to pay $100 a barrel six months from now.

[Darian Woods]

And six months goes by. And let's say the cost of crude oil has gone up to $150. The futures contract, it locked in a price of $100, though. So now the airline has made a $50 profit. Of course, if oil prices have gone down to $50 a barrel, the airline loses money.

[Waylon Wong]

Now, it's important to note there are not actual, like literal barrels of crude oil trading hands here. What we're talking about is the airline making money in the markets on this trade. And that money helps the airline build a financial cushion for when they actually do go to pay for jet fuel.

[Jerry Lademan]

It's really viewed as insurance to protect the financials against a sudden spike in jet fuel.

[Darian Woods]

And for years, this insurance policy worked well. So, for example, American airlines said in 2003 that it saved almost $150 million in fuel costs thanks to hedging. Southwest Airlines pursued an aggressive hedging strategy. The company estimated that it saved $3.5 billion between 1998 and 2008, savings to expand operations and hire workers.

[Waylon Wong]

However, Jerry says most of the major airlines in the US eventually soured on fuel hedging. One reason the Wall street transaction fees to make these hedges got expensive.

[Jerry Lademan]

Like any insurance, there's a cost to it. You're paying a premium for the privilege of locking it in, and it's sort of built into that price and it's expensive. And what I think the US Airlines found is that it wasn't worth that expense.

[Darian Woods]

Plus, Jerry says the airlines found that they could make money the old fashioned way by raising prices.

[Jerry Lademan]

The better answer was to, in a fair manner, pass costs on to consumers. And the industry found that they were able to adjust fares to cover. You know, I'm not saying 100% of a spike in fuel price, but a significant increase in fuel, and that's a much, much healthier way for an industry to manage its costs.

[Waylon Wong]

United, American, and Delta stopped hedging in the 2010s. There was an unexpected drop in the price of oil during that period. Airlines that had bet on higher prices ended up with heavy losses on their hedges. The president of American Airlines told the Wall street journal in 2016 that hedging is a rigged game that enriches Wall Street.

[Darian Woods]

Meanwhile, Southwest kept going with hedging because it was under more pressure to keep prices low. That's according to Kerry Tan. He's an economist at Loyola University Maryland who studies the airline industry.

[Kerry Tan]

Delta can charge a premium on prices because of the perceived higher quality experience and the clientele being much less price sensitive than your traditional passenger on Southwest.

[Waylon Wong]

But even Southwest stopped hedging a year ago. The company said the premiums it paid to make these trades had gotten too costly and that it would find other ways to address fuel prices.

[Darian Woods]

Today, none of the major airlines in the US Are hedging. Many outside of the US Are, but even airlines like Cathay Pacific and Qantas are increasing airfares or fuel surcharges. It appears that hedging alone isn't enough to keep prices low for flyers.

[Waylon Wong]

So will U S based airlines dust off their old hedging playbooks and get their investment bankers back on speed dial? Carrie says the big variable is how long oil prices will stay elevated.

[Kerry Tan]

If you're a hedging fuel, you're trying to make a bet that prices are going to go up. But today, right now, it's hard to say whether prices are going to be chronically high or if they're going to revert back or what's going to happen even months from now.

[Darian Woods]

Kerry's hedging his statements now. It's possible that the airlines believe that they can ride out a few months of higher oil prices with higher fares or by implementing fuel surcharges. But if the war persists, then all bets are off.

[Waylon Wong]

This episode was produced by Corey Bridges with engineering by Jimmy Keeley and Maggie Luthar. It was fact checked by Sierra Juarez. Kicking Cannon is our show's editor and the indicator is a production of npr.

[Sponsor Announcer]

This message comes from Capella University. You know that feeling when there's a spark building inside you that you were meant for more? That's your own drive pushing you towards what's next. Capella University gets that with their Flexpath learning format, you can set the pace and earn your degree without putting life on pause. You've built experience and know what you're capable of. Now this is your time to turn that momentum into more. The only real question is what can't you do? Learn [e-mail] Support for NPR and the following message come from Edward Jones. A rich life isn't always a straight line. Unexpected turns can bring new possibilities. With 100 years of experience navigating ups and downs, Edward Jones can help guide you. Let's find your rich together. Edward Jones, Member, SIPC Support for NPR and the following message come from Washington Wise decisions made in Washington can affect your portfolio every day. Washington Wise, from Charles Schwab, is an original podcast that unpacks the stories making news in Washington. Listen @schwab.com washingtonwise.