Hedging fuel price is a good, I would even say necessary practice. It makes future costs predictable and allows fair long term planning. Without hedging airlines would be heavily damaged when oil price shoot up without warning. Smoothing volatility is the normal business practice. Not hedging is speculating on oil prices and hoping that it would go down rather than up.
As long as paid oil prices (including hedge) are high, a fuel surcharge is in order. If oil price remains low and hedges concluded at a high price matures, then a zero fuel surcharge should be in order. The US have fined airlines (BA comes to mind) for charging abnormal fuel surcharge. The result is that the overall surcharge is now carefully decomposed into taxes, fuel surcharge and carrier surcharge. This last one is at the discretion of the company.