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If the No. 1 investment rule is diversify, the next is Do Not Invest in Airlines. But since late last year obeying rule No. 2 would have cost you a lot of money. Bloomberg's global airline index gained 28 per cent between mid-November and mid-March; MSCI's equivalent, 22 per cent. Now, however, both indexes are down by 6 to 8 per cent from their peaks. The question, then, is obvious: Is this a temporary correction, or should investors keep ignoring the maxim?

First, they need to work out where the trouble is centred. Asia can certainly take part of the blame. The latest "bird flu" outbreak in China seems to have rattled nerves, compounding North Korean worries and dredging up memories of the SARS scare a decade ago. With nine bird flu deaths notified as of Tuesday – compared with nearly 800 in the SARS epidemic – the two episodes look very different. Plainly, though, these are early days. But investors may take some comfort from the fact that the SARS impact proved short-lived: as UBS points out, the MSCI World Airlines index fell 17 per cent early on, but was up 4 per cent over the entire event.

U.S. carriers are also behind the latest dip in share prices. March trading updates from Delta and US Airways were disappointing, with revenue implications from federal budget cuts cited. But the European airline market looks better placed – particularly for low-cost carriers heavily exposed to short-haul routes. Restructuring by flag-carriers and the demise of some smaller airlines means that capacity was reduced over the recent northern winter; seat growth this summer is expected to be a modest 2 to 3 per cent.

At a global level, meanwhile, the airline sector still trades on a reasonable enterprise value to forward earnings before interest, tax, depreciation and amortization ratio of under six times (although factoring in airline debt correctly is always tricky). Investment rules are there to be broken: even airline critic Warren Buffett has put money in private aviation company NetJets. But selectivity is now the key.