European carriers including Lufthansa Group, Air France-KLM and Ryanair Holdings Plc have said in recent days that they fixed at least half of their fuel bills for parts of next year. Others from further afield like Southwest Airlines Co., Alaska Air Group Inc. and Turkish Airlines have all boosted their hedge positions in recent months.

Not every company in the airline industry hedges against higher oil prices, but those that did racked up losses of almost $5 billion at one stage during the pandemic because they effectively forward-purchased millions of tons of fuel they didn’t need. Their return signals confidence about future demand to travel. For the oil market, it also means a large consumer is back and bidding for barrels in the future again, easing a liquidity vacuum that built up late last year.

“We continue to see significant opportunities to buy fuel forward,” Michael O’Leary, chief executive officer of Ryanair said on a call with analysts. “We’ve hedged our fuel requirements with a mix of jet swaps and caps.”

Carriers are coming back to the market as they have eaten through the hedges they placed before the pandemic, just as capacity picks up again and fuel prices rally to near their highest level in seven years.

Still, while they’ve returned, the way they are hedging has changed compared with the pre-Covid era. Where in the past they would sell put options to cheapen the cost of their hedges, now they are favoring swaps that give a less risky exposure to price moves.

Also, while airline capacity is still down, they are also hedging a smaller portion of their fuel bills, meaning they are less insured against a surge, but equally less at risk of another demand implosion. The hedges also tend to be shorter-term than they used to be.

Jury is out

Some are also reluctant to return to a market that has burned them in the past. One trader at a major U.S. airline said their company had little appetite to lock in prices at current levels. Low-cost European carrier Wizz Air abandoned hedging earlier this year, but fielded several questions from analysts on its earnings call this week about whether it was prudent to do so, given the surge in oil prices.

“The company has actually lost a lot of money on fuel hedging” in the past, Chief Financial Officer Jourik Hooghe said. “I think the jury is out, we’ll see how the actors are going to behave in the future.”

Others are coming back to the market but cautiously. British Airways owner IAG SA said it doesn’t want to hedge too much unless it is sure of flight volumes. It has boosted its hedging for next year to about 40%, but said it will only lock in prices more than two years out in exceptional circumstances. In the equivalent period before the pandemic it was about 70% hedged for the following year.

Some are already seeing the benefits. At current prices, Air France said it stands to gain $350 million from its hedge book this year, while IAG said it had made about $200 million from gains partly made up of fuel hedges. But a sharp pullback in oil down to the low-$50s could see Germany’s Lufthansa stand to lose about $1 billion, a stark reminder of losses from the last 18 months.

“You don’t want to start building your hedge book too quickly unless the demand — and you know you’re going to be flying this capacity — is certain,” said Steve Gunning, chief financial officer at IAG. “I think that certainty has been building over the last month or two.”