What happened

Concerns about the coronavirus outbreak in China weighed on airline stocks on Friday, with shares of American Airlines Group (NASDAQ:AAL) and United Holdings (NASDAQ:UAL) each trading down more than 5% and Hawaiian Holdings (NASDAQ:HA) down more than 4%. It's far too soon to say for sure how bad the outbreak will get, or how widespread it will become, but investors aren't in a mood to hang around to find out.

So what

International public health experts are carefully monitoring an outbreak originating in Wuhan, China, that to date has infected more than 830 and killed at least 26. Most of the cases so far have been in China; however, the Centers for Disease Control and Prevention (CDC) on Friday confirmed a second U.S. case, and France confirmed the first two cases in Europe.

An airline passenger with a health mask on.

Image source: Getty Images.

The CDC continues to downplay the risk of an outbreak in the United States, but headlines out of China about a spreading infection and government efforts to quarantine large cities offer reason for concern. Airline stocks figure to be among the hardest-hit sectors by a prolonged outbreak, as it would likely limit business and vacation travel.

American Airlines is seen as particularly vulnerable to an unexpected demand shock because it has the highest debt burden among major airlines. American is already facing labor unrest and is among the airlines most impacted by the grounding of Boeing's 737 MAX.

Among other large airlines, shares of Delta Air Lines (NYSE:DAL) traded down more than 3% and Southwest Airlines (NYSE:LUV) shares were down less than 1%. Delta, which owns a stake in one of China's largest airlines, was hit hardest earlier in the week, and Southwest's primarily domestic network is less vulnerable to a slowdown in international travel.

Now what

It is far too soon to say whether investors are overreacting, or underreacting, to the headlines and images coming out of China. Yet from what we know so far, it doesn't seem to me that we are in the early stages of a global pandemic that will decimate travel for months if not years to come. Airline stocks will likely be volatile while this story plays out, and it seems possible that analysts will at least have to bring down first-quarter estimates due to the coronavirus scare.

But for long-term holders able to ride out the turbulence, I see no reason to sell at this time. The airline industry remains much healthier than it has been through most of its history, and all of the carriers should have the resources to ride out an outbreak similar in scale to the SARS outbreak in 2003.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.