American Airlines' (AAL) - Get American Airlines Group, Inc. Report decision to boost pay for flight attendants and pilots was welcomed by union leaders but denounced by a veteran airline analyst.

In a report issued early Thursday, JPMorgan analyst Jamie Baker cut his rating on American to neutral from overweight.

"We are troubled by AAL's wealth transfer of nearly $1 billion to its labor groups," Baker said. "In addition to raising fixed costs, American's agreement with its labor stakeholders establishes a worrying precedent, in our view, both for American and the industry.

"Remember this day," he said. "This is a seminal event, and represents the first, credible potential blow to our long-held 'it's different this time' investment thesis.

"While hopefully more of a glance than a body blow for the sector, the decline in estimated 2018 AAL earnings reduces our equity price target to a level that no longer warrants an overweight rating," Baker said.

In premarket trading, American shares were down 3.5%.

American said late Wednesday it will jump ahead of contract negotiations scheduled for 2019 and 2020, respectively, for flight attendants and pilots, and will award flight attendants a 5% raise and pilots an 8% raise.

The cost of the early raises, American said, would be $230 million in 2017 and $350 million annually in 2018 and 2019.

Dan Carey, president of the Allied Pilots Association, and Bob Ross, president of the Association of Professional Flight Attendants, both welcomed the increase in prepared statements.

Carey has been pushing for just such a move since he took office in July 2016. In March, during a visit to the pilot base in Charlotte, Carey said he believed the airline was likely to offer pilots a mid-contract adjustment.

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"This long-overdue pay rate increase represents a welcome initiative by management and suggests that our efforts are beginning to bear fruit," Carey said.

"We look forward to ongoing engagement with management to address issues of common concern, including other contractual disparities between us and our peers," he said, noting that a "collaborative, problem-solving approach will definitely help foster the culture change that has been a stated goal of both management and APA since the merger."

Flight attendants just lost an arbitration case that would have given them a pay raise, but Ross said, "I am encouraged by {management's} apparent willingness to finally begin recognizing flight attendants' contributions to this airline's success."

Like Carey, Ross thanked union members for their support. "This development would not have been possible without the memberships' unrelenting pressure to be compensated in line with our peers," he said.

American negotiated pay raises for both pilots and flight following a 2013 merger with US Airways. It also agreed to pay increases for mechanics, fleet service and other workers represented by the International Association of Machinists and the Transport Workers Union, who continue to negotiate a joint contract.

The average American worker has seen a pay increase of 39% over three years, American said. At first, pay was the highest in the industry. But as other airlines negotiated pay raises, American fell behind.

"This doesn't feel right for the new American and it doesn't feel consistent with our commitment," said CEO Doug Parker and President Robert Isom in a letter to employees on Wednesday. "We never anticipated this large of a gap for this long a period, and we don't like that it exists, contract or not.

"Therefore we intend to work with the unions to adjust the hourly base pay rates of all American pilots and flight attendants to levels that are equal to the highest rates currently in place at either Delta or United," they said. If unions agree, the changes could be effective as early as May.

Baker said American's 2017 cost per available seat mile will rise 4.9%; he had estimated 4.1%, while 2018 CASM will rise 1.3% rather than 0.8%. Baker reduced his 2017 EPS estimate by 29 cents and he reduced is 2018 EPS estimated by 46 cents. He reduced his price target to $52 from $59.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.