American Airlines Downgraded As Pay Raises Set 'worrying Precedent'

By Tomi Kilgore Markets MarketWatch Pulse

American Airlines Group Inc. was downgraded at J.P. Morgan Thursday, which had been bullish on the air carrier since at least December 2013, saying the wage increases being implemented is a "worrying precedent" for both American and the industry. Analyst Jamie Baker cut his rating to neutral from overweight. He slashed his stock price target to $52, which is 12% above Wednesday's closing price of $46.40, from $59. The stock slumped 4.6% in premarket trade, after the company reported first-quarter earnings, and said it would raise the base pay for flight attendants and pilots, outside of contract negotiations, to industry highs. "We are troubled by [American's] wealth transfer of nearly $1 billion to its labor groups," Baker wrote in a note to clients. "In our minds, this is a seminal event, and represents the first, credible potential blow to our long-held 'it's different this time' investment thesis." Among other airline stocks, Delta Air Lines Inc. slid 2.2% premarket and United Continental Holdings Inc. shed 1.9%. American's stock has soared 26% over the past 12 months, while the NYSE Arca Airline Index has rallied 25% and the S&P 500 has gained 14%.

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