HONG KONG/GDANSK, March 12 (Reuters) - As a sharp rise in oil prices rattles global transport markets, airlines face an additional threat: the price of jet fuel has risen far faster than crude prices.

Even airlines that use hedging contracts to protect against sudden spikes in oil prices are rapidly announcing fare hikes, fuel surcharges and capacity cuts as they grapple with an unprecedented jump in refining margins since the start of the U.S.-Israeli war on Iran.

Jet fuel prices normally move in tandem with oil prices, but they have doubled since the Iran conflict, far outpacing a one-third rise in crude prices, casting a shadow over margins and rattling carriers around the world.

"It's a dramatic increase," Cathay Pacific Airways ( CPCAF ) Chief Financial Officer Rebecca Sharpe said in Hong Kong after reporting earnings on Wednesday. "Our hedging is on crude oil rather than jet fuel. And therefore, while we do have some protection from that hedging, obviously, it's not protecting against the jet fuel price in totality."

WINNERS AND LOSERS

Major carriers in the U.S. and China have no hedging contracts in place, leaving them fully exposed to jumps in the fuel price, which aviation expert Hans Joergen Elnaes said historically tended to remain elevated for months in events of unrest like the Middle East crisis.

"Traditionally, the history is low-cost carriers that carry the most price-sensitive customers. They're the ones that get squeezed the most in this environment," said Nathan Gee, Bank of America's head of Asia Pacific transportation research.

Hedging remains a double-edged sword. While it can shield airlines from sudden spikes in fuel costs through the use of derivative contracts, it risks losses when prices fall, exposing carriers to above-market rates in swaps - a certain type of hedge contract that has burned some carriers in the past.

In Europe, where hedging is common, a sustained 10% increase in jet fuel prices could hit budget airline Wizz Air's ( WZZAF ) operating profit by as much as 31% this year, according to J.P. Morgan, with impacts between 3% and 10% for Air France KLM, Lufthansa, British Airways-owner IAG and Ryanair.

Wizz, which flagged a 50 million euro ($57.74 million) hit from the Middle Eastern conflict, has hedged 83% of its jet fuel needs through March, but is only 55% covered in the year through March 2027. Its CEO Jozsef Varadi told Reuters last week that the company was well protected and "not naked".

In Asia, jet fuel prices were about $21 a barrel higher than oil before the conflict, but the refining margin widened to as much as $144 on March 4 and remained unusually high at $65 as of Wednesday.

"That's what blew out last week and that's where everyone is less protected," said BofA's Gee.

Air New Zealand ( ANZFF ) and Australia's Qantas Airways do not even fly to the Middle East and are more than 80% hedged against crude oil for the half-year ending in June, but they have already lifted fares to protect margins.

BofA said Asian airlines' 2026 net profits could drop by an average of 6% for each $10 per barrel increase in refining margins for 90 days, assuming no pricing offsets.

Many Asian airlines had no hedging or only hedged against the Brent oil price benchmark, with Singapore Airlines and Virgin Australia standouts with more protection against jet fuel price rises, industry analysts said.

Cathay's Sharpe said many airlines lacked jet fuel hedging because it was a far smaller market and more costly to hedge than oil.

"The market is very thin and it makes it very expensive," she said. "Fuel prices can be highly volatile and we don't have a crystal ball as to what the future will bring."

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