When the Oil Get Expensive, Who Survives?

Options, hedging, and the risk management mindset that separates prepared businesses — and individuals — from the ones left scrambling.

Southwest Airlines killed its fuel hedging programme in early 2026. Weeks later, jet fuel prices roughly doubled. That timing will haunt them for years. Across the industry, unhedged carriers were caught completely exposed — billions in added costs, emergency capacity reviews, profit warnings. Meanwhile, SIA and Scoot barely flinched. The difference had nothing to do with luck. It was a decision made years earlier, in calmer times, when nobody thought they'd need it. That is exactly the point.

What just happened? The US–Iran conflict sent jet fuel prices soaring. Not every airline blinked.

When US and Israeli forces launched Operation Epic Fury in late February 2026, Brent crude surged more than 55% in weeks — from roughly US$72 to nearly US$120 per barrel. Iran's closure of the Strait of Hormuz locked out 20% of global oil supplies, prompting the IEA to call it "the greatest global energy security challenge in history." For airlines, where fuel is 20–25% of costs, it was a reckoning. Some were ready. Most were not.

Singapore in focus

SIA and Scoot: calm in the storm

United Airlines had warned a sustained fuel spike could add US$4.6 billion to its annual bill. Wizz Air faced a projected 31% drop in operating profit. Southwest — which had just exited its hedging programme entirely — watched jet fuel costs nearly double with zero protection in place. SIA and Scoot occupied a different universe entirely.

Scoot's VP for Pricing credited hedging for absorbing a fuel burden that "more than doubled" — while the airline continued growing passengers on key routes. SIA's full-year net fuel cost actually fell 6.7%, buffered by hedging gains. DBS Bank described SIA as "relatively insulated," with roughly 40% of near-term fuel needs locked in through contracts structured well before the crisis began.

How it works

Options as a risk management instrument

A call option gives an airline the right — but not the obligation — to buy jet fuel at a fixed price in the future. If oil stays cheap, the option expires unused and the airline buys at market rates. The premium is simply the cost of protection. If oil spikes, the airline exercises the option at the locked-in rate while competitors pay spot price. Clean, effective, and entirely predictable in cost.

How a fuel call option works

Pay the premium

Lock in a future fuel price upfront. Treated as a normal operating cost.

Monitor markets

Prices stay low — option unused. Prices spike — exercise at the protected rate.

Crisis hits

Hedged carrier buys near strike price. Unhedged carrier pays spot — often 50%+ more.

The awkward boardroom question

Every calm year, someone asks: "Are these premiums really worth it?" It is the wrong question. The premium is not the cost of the hedge — it is the cost of the option to survive when things go wrong. And you can only buy that option before the crisis, not during it. Southwest found that out the hard way.

The other extreme - But full hedging isn't the answer either

Southwest's mistake in 2026 was exiting too early. But its earlier mistake — before COVID — was the opposite: hedging too much. At its peak, Southwest locked in close to 100% of fuel needs. When the pandemic collapsed demand and oil prices crashed in 2020, it was stuck buying fuel at above-market rates for planes that were barely flying. A protection strategy became a liability. Full hedging eliminates upside exposure entirely, drains capital that could fund growth, and demands specialist treasury teams that many businesses simply cannot sustain.

When over-hedging backfire

Southwest hedged nearly 100% of fuel before COVID-19. When demand collapsed and oil fell, it paid above-market rates for grounded planes — turning a risk tool into a source of loss. Locking in prices only helps if the risk you feared actually materialises. Protection that ignores your actual exposure profile can hurt as much as no protection at all.

The right approach - A risk-based hedge — practical, proportionate, purposeful

SIA's answer is calibration, not maximisation. Hedging roughly 40% of near-term fuel needs is a deliberate choice — enough certainty to stay operationally stable through a shock, without locking up capital or losing the flexibility to benefit if prices fall. It reflects a clear-eyed assessment of how much cost volatility the business can absorb before it causes real damage. Not zero risk. Not zero exposure. Just a considered, proportionate line drawn in the right place.

The principle extends beyond aviation. Any business facing volatile input costs — raw materials, energy, foreign exchange — should be asking not "should we hedge?" but "how much of our exposure warrants protection, and at what cost?" The goal is resilience, not invincibility.

From 40,000 feet to your living room - Personal insurance follows the same logic

Imagine receiving an S$80,000 hospital bill the week after letting your Medishield Life supplement lapse. The premium felt unnecessary for years — nothing went wrong. Then something did, and a decision made in a moment of complacency became one of the most expensive of your life. That is not a hypothetical for many Singaporeans. It is a recurring reality.

You do not need to insure against every conceivable risk. What you need is coverage for the risks that would genuinely derail your financial life: a critical illness, a prolonged loss of income, a hospitalisation that drains years of savings. Pay the premium on those. Hope sincerely that you never have to claim — because that means your year went well. The peace of mind itself is a hard financial outcome, not a soft one. It means that when something happens, you are not making consequential decisions under duress.

The airline

Hedges a calibrated portion of fuel needs — enough to stay operational through a shock, without locking up capital it may need elsewhere.

You

Insure the risks you genuinely cannot absorb — serious illness, income loss, major property damage. Not every scratch and bump. The events that would change your financial life permanently.

Every calm year without a claim is not money wasted. It is evidence that the risk you protected against did not materialise. That is the best possible outcome.