A jet fuel swap is a financial derivative that allows aviation industry participants to manage jet fuel price risk by exchanging fixed price payments for floating jet fuel prices, or vice versa. These swaps enable airlines to hedge fuel costs without physical delivery, providing budget certainty and protecting against volatile energy prices that significantly impact airline profitability.

Jet fuel swaps can reference various regional benchmarks and quality specifications, with settlements based on published price assessments rather than physical delivery. Airlines use these instruments to hedge a portion of their fuel exposure while maintaining some market participation. The swap market provides liquidity and price discovery for jet fuel without requiring physical storage or delivery infrastructure.

Real-world example: An airline enters a jet fuel swap to pay $80 per barrel fixed while receiving floating Singapore jet fuel prices, protecting against fuel cost increases that could reduce profitability on international routes over the next 12 months.