Derek Kerr
Executive Vice President & Chief Financial Officer at American Airlines Group
Thanks, Robert, and good morning, everyone. Before I begin my remarks, I would also like to thank the American Airlines team for their hard work during the quarter. Their continued resilience in the face of uncertainty due to the Delta variant is commendable. This morning, we reported a third quarter GAAP net profit of $169 million or $0.25 per diluted share. Excluding net special items, we reported a net loss of $641 million or a loss of $0.99 per share. As Doug mentioned in his remarks, this was our strongest quarter since the pandemic began.
As we have discussed in the past, as we always expected, the recovery would be unpredictable, and our third quarter results reflect this. Despite the Delta variant related volatility in demand and revenue trends that Robert discussed, our financial performance improved from the second quarter, but fell short of our initial expectations that we outlined in our last earnings call. While the slowdown in demand was clearly disappointing, it is important to note that the trajectory of our results continues to be positive. In fact, even with the drop-off in bookings from the Delta variant and rising oil prices, our third quarter pretax earnings, excluding net special items, improved by nearly $600 million sequentially versus the second quarter. This makes it even clearer to us that the steps we are taking over the past 18 months are working. As we have navigated the pandemic, we've built back our network in a way that would keep our capacity aligned with demand while giving us the ability to be flexible as conditions change. We've also worked to keep our controllable costs down and have actioned $1.3 billion in permanent annual cost initiatives this year alone. Based on our results, it's clear these actions are paying off, as our third quarter CASM, including fuel and net special items, was up just 10.5% versus the same period in 2019 despite flying approximately 20% less capacity.
On the fleet side, we moved swiftly to retire older aircraft and accelerate our fleet harmonization project. Our 737 retrofit program was completed in May. And we continue to expect our A321 aircraft to be complete by early next year, a full year ahead of our original schedule. In addition to the customer benefits of larger overhead bins, in-seat power and streaming in-flight entertainment, these aircraft will generate more revenue and allow us to connect to more customers over our network. They will also provide a unit cost tailwind as we build back our network.
With respect to our wide-body aircraft, we continue to work with Boeing to finalize the timing of our delayed 787-8 deliveries that were expected to arrive in 2021. In the meantime, due to the continued uncertainty in the delivery schedule, we have proactively removed these aircraft from our winter schedule to minimize potential passenger disruption. And I'd also like to note that these delays have had an impact on our fourth quarter CASM since we built the cost structure to fly these aircraft during the fourth quarter. We ended the quarter with approximately $18 billion of total available liquidity, which reflects the $950 million prepayment of our spare parts term loan made in July and approximately 440 -- $649 million of scheduled debt payments made during the quarter. The scheduled debt paydown unencumbered 20 Boeing 777 aircraft. Further, in our unencumbered asset base to $3.8 billion and our first lien capacity to more than $8.4 billion.
As we look ahead, we feel confident with our -- we have enough liquidity to allow American to navigate the choppiness of the recovery. Because of this choppiness, we will continue to keep liquidity at elevated levels in the near to medium term, with a plan to step down our target liquidity to approximately $10 billion to $12 billion at some point next year when we are confident the recovery has taken hold and we have returned to sustained profitability.
The deleveraging of American's balance sheet remains a priority, and we are committed to significant, steady and continuous debt reduction in the years ahead. Even with the slower-than-expected recovery observed during the third quarter, we remain on track with our target of reducing overall debt levels by $15 billion by the end of 2025. $10 billion of this will be achieved through amortization of debt and is net of new financing. Importantly, these debt reduction targets are based on a plan that assumes future deliveries are financed. Should we elect to use cash in lieu of financing aircraft, that decision would contribute to deleveraging and further accelerate the time line to achieve these targets. Of the incremental $5 billion, nearly $1 billion has already been actioned with the prepayment of the spare parts term loan we announced on the last call. As we look ahead, we will continue to focus our efforts on prepayable debt, which currently represents approximately 30% of our total debt obligations.
In addition to deleveraging our balance sheet, this plan will allow us to smooth our near-term maturity towers and free up high-quality collateral. Assuming this level of debt reduction and continued margin improvement, our plan is targeted to result in the best credit metrics in the history of post-merger American by the end of the 4-year period.
Looking into the fourth quarter, the delay in the return of corporate travel and rising fuel prices will put pressure on our margins relative to the third quarter. We expect our capacity to be down approximately 11% to 13% versus the fourth quarter of 2019. Based on current demand assumptions and capacity plans, we continue to expect a slight sequential increase in our revenues and expect total revenues to be down approximately 20% versus the fourth quarter of 2019. In total, we expect the pretax margin, excluding net special items, of between negative 16% and negative 18%.
For the full year, we -- for the full year, our projected debt principal payments are expected to be $4.4 billion. This includes the $750 million payment of spare parts term loan and the $550 million prepayment of the term loan with the U.S. Treasury that was completed earlier this year. We have $612 million in scheduled debt principal payments in the fourth quarter. With respect to capital expenditures, we expect full year 2021 CapEx to remain minimal, with non-aircraft CapEx at approximately $900 million and net aircraft CapEx, including predelivery payments, remaining an inflow of $900 million.
We are still in the early stages of building our operating plans for 2022. And we'll have more to say on what our capacity and cost outlook will look like on our next earnings call. But at a high level, based on the demand trends we see today along with the feedback from our corporate customers, we expect to slowly increase our capacity throughout the year and to have full year capacity very near 2019 levels. This, of course, is subject to the future demand environment and we will always retain the ability to adapt if demand conditions warrant.
Lastly, I know a lot of investors are concerned about inflationary pressure in 2022 and beyond. We'll know more once we finalized our 2022 budget, but we do see pressures in fuel prices, hiring and training for both new hires and existing crews as we ramp up our operation, including on the regional side, where we recently announced the pilot retention program. We are also seeing increased starting wages for certain regional groups, including vendors. Even with these pressures, our fleet simplification strategy enables higher aircraft utilization and higher average gauge, both of which will help offset some of these unit cost pressures. As I said earlier, we will share more specific details on these impacts to our cost structure as our 2022 plan on our next earnings call in January.
So in conclusion, our team continues to do an amazing job of managing through the uncertainty, maintaining a strong liquidity position and driving efficiencies throughout the organization. And we are well positioned for the future.
So with that, I will open up the line for analyst questions.
