Airline exchange traded funds were down sharply Wednesday along with shares of Delta (NYSE: DAL) after the company reported weaker-than-expected earnings that were hit by higher fuel costs.

“We believe the high fuel environment is here to stay and the permanency of that condition must be a reality for Delta,” said Chief Executive Richard Anderson during the conference call. “Given the economic uncertainty, we believe it prudent to reduce capacity further as a hedge against the economy and higher fuel prices.”

Guggenheim Airline ETF (NYSEArca: FAA) and Direxion Airline Shares (NYSEArca: FLYX) were down about 3% on Wednesday.

Delta accounts for 13.4% of the Guggenheim ETF, which fell to a new 52-week low.

Delta’s earnings per share fell from the year-ago quarter as fuel expense soared $1 billion, according to a Deutsche Bank note.

“The companies in this fund are at the mercy of fuel prices, which are elevated compared with 2010 levels and have helped to whack their stock prices,” says Morningstar analyst Robert Goldsborough in a profile of Guggenheim Airline ETF. “During the first six months of 2011, the airline companies held in this ETF suffered amid elevated fuel costs relative to last year, along with reports of failed price increases across the industry.”

Guggenheim Airline ETF

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