CHICAGO (

TheStreet

) -- In yet another positive sign for the airline industry, a veteran analyst said that the merger between

United

(UAL) - Get Report

and Continental is leading to capacity cuts and new synergies.

In a report issued Tuesday, Avondale Partners analyst Bob McAdoo said his review of recently-posted January schedules shows a half dozen schedule reductions as well as four cases where capacity will increase. All of the changes involve hub-to-hub flights.

"Continental and United are already making adjustments to their networks to reduce capacity and improve profitability," McAdoo wrote. "Although the magnitude is not huge, the direction is clear. With new traffic flows and by eliminating some duplicate flying, the new UAL is already pushing to achieve the available synergies."

"We see these steps as a positive for UAL and the industry in general," McAdoo added. He reiterated a market outperform on United, which reports earnings on Thursday. All four network carriers and both surviving low-cost carriers report on Wednesday and Thursday.

The outlook is so positive that even

American

(AMR)

, which has lost money in 10 of the last 11 quarters, is expected to make money in the third quarter. Analysts surveyed by Thomson Reuters expect American to earn 32 cents a share, its first quarterly profit in two years.

CRT Capital Group analyst Mike Derchin said the industry will earn $2.4 billion in the third quarter and will have a profitable fourth quarter for the first time since 2000. He

recommends

United,

Delta

(DAL) - Get Report

and

JetBlue

(JBLU) - Get Report

.

McAdoo said the industry has undergone a structural change and is poised for long-term growth. "If the airlines can maintain the capacity and cost discipline shown over the last few quarters, and we have no reason to believe that they will not; most should see greatly improved earnings with economic recovery." Besides the recovery and the capacity reductions, carriers are also benefitting from stable oil prices and vastly increased fee revenue.

The six January route reductions include these: United will drop Continental's Cleveland-Dulles flights, while retaining United's flights, a 33% reduction in total service. United will drop 24% of Continental's Newark-Denver seats, a 15% drop in total service. United will drop 47% of Continental's Newark-Dulles seats, a 38% drop in total service.

Also, United will drop 15% of Continental's Newark-Chicago seats and some United flights, leading to an 11% drop in service. United will drop 61% of Continental's Houston-Dulles service, a 34% drop in total service. United will drop its only Houston-Los Angeles flight, an 11% drop in service.

Meanwhile, United will add seats between Cleveland and Chicago, Cleveland and Denver, Denver and Houston and between Chicago and Houston.

-- Written by Ted Reed in Charlotte, N.C.

>to contact the writer of this article, click here:

Ted Reed

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