Shares of domestic-focused Southwest Airlines (NYSE:LUV) so far in 2020 had held up better than shares of the company's more international-dependent rivals, with the stock up more than 5% for the year heading into this week's trading compared to the NYSE Arca Airline Index's 5% decline. That all changed on Monday as Southwest shares fell 5% on word the coronavirus is expanding rapidly around the globe.
Southwest shares joined in a broader market sell-off after reports of widespread coronavirus cases in Italy and South Korea.
Airline stocks are a logical target for investors looking to reduce risk, and indeed airline shares were hard hit in January as the coronavirus outbreak originally worsened. But the conventional wisdom then was the coronavirus was a problem mainly in China or, at most, Asia, and carriers like Southwest that only fly domestically and to the Caribbean were not caught up in the initial sell-off.
The virus's aggressive spread is making investors question that initial assumption and reconsider the potential impact on Southwest and other U.S.-focused travel businesses. Even if the U.S. averts a widespread outbreak, the renewed focus on the virus is coming just as U.S. travelers are in the process of planning summer vacations. It's at least possible that concerns about the virus will suppress U.S. travel demand during the key summer holiday season and impact the results of Southwest and other airlines.
The market hates uncertainty, so it's no surprise to see shares of Southwest selling off today. Southwest has other challenges on its plate right now, most notably its reliance on Boeing's troubled 737 aircraft, so it might make sense for those with a low risk tolerance to watch from the sidelines.
But for a long-term holder with the stomach to ride through turbulence, Southwest is just as good an investment today as it was a month ago. There is likely to be continued volatility as this situation plays out, but Southwest has the wherewithal to power through these headwinds.