What happened

Shares of domestically focused airlines were able to sustain altitude during the initial January COVID-19 sell-off, in part because at the time investors mostly considered the outbreak to be a China story.

That perception changed dramatically in late February, causing shares of Spirit Airlines (NYSE:SAVE) to fall 30% for the month, according to data provided by S&P Global Market Intelligence, while shares of Alaska Air Group (NYSE:ALK) and JetBlue Airways (NASDAQ:JBLU) fell more than 20%.

JBLU Chart

Airline data by YCharts.

So what

Airline stocks took it on the chin during a difficult week for investors at the end of February, as new coronavirus outbreaks in Italy and South Korea and the first confirmed cases in the U.S. made it clear this would be a global issue. The heightened concern comes at a time when U.S. consumers are typically planning their summer vacations, and it could eat into demand during the busy spring break, Easter, and summer travel seasons.

Spirit, Alaska, and JetBlue are all focused on domestic and tourism-heavy international destinations like the Caribbean, and the stocks fell on investor fear that growth plans for 2020 will be wiped out by the disease.

An airplane landing on a runway at night.

Image source: Getty Images.

Those airlines are also all small enough that a severe scenario in which travel demand is depressed through most of 2020 could leave them vulnerable. Southwest Airlines, a larger airline with a stronger balance sheet but one that's also focused on domestic and tourist travel, fell "only" 16% for the month.

Late in the month, most of the airline sector was downgraded by analysts at Buckingham and Deutsche Bank over uncertainty about how long the issues would last.

Spirit also had some company-specific issues. On an early February call with investors, management said that expected delays in new planes arriving from Airbus could curtail 2021 growth plans. Spirit is an attractive investment in part because the company is among the fastest growing airlines, so investors watch those growth projections closely.

Now what

The coronavirus impact on travel and airlines is real and is going to drive down results for at least the first half of 2020. Exactly how much it will hurt results, and for how long, remain impossible to pinpoint. Given how much the markets hate uncertainty, it is no surprise these airline stocks were hit hard during the sell-off.

That said, there is no reason to believe the outbreak will lead to a permanent contraction of the travel market. Even if 2020 ends up being a lost year for the airlines, Spirit, Alaska, and JetBlue all have interesting long-term growth stories, and Spirit in particular has a strong competitive position.

These stocks could fall further still in the weeks to come as the coronavirus continues to advance in the U.S., but airline balance sheets are stronger than they have been heading into past downturns, and in all but the worst-case scenario, these airlines should be able to fly through the turbulence.

Given the potential for volatility, buying into these airlines right now won't be for everyone, but for those who can stomach the choppiness and want to hold for the long term, the sell-off appears to be overdone.

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.