Delta Air Lines and United Continental, the two largest U.S. airlines by market capitalization, are both expected to report profits in the fourth quarter as revenue growth overcomes high fuel prices.

Delta Air Lines, Inc. (NYSE:DAL) will release earnings on Wednesday, Jan. 25, before markets open, while United Continental Holdings Inc. (NYSE:UAL) will report results on Thursday, Jan. 26, before markets open.

Bob McAdoo, a senior research analyst at Avondale Partners, said that the overall outlook for the airline industry was positive.

The airlines are not flooded with surplus seats, he said, making them profitable despite high oil prices.

Delta improves

Analysts are bullish on Atlanta-based Delta, predicting earnings of 35 cents per share in the fourth quarter, up 84.2 percent from 19 cents per share in the previous year, according to Zacks.

Fourth quarter revenue is projected to be $8.31 billion, 6.7 percent more than $7.79 billion in the fourth quarter of 2010.

Delta said last year that 2012 was expected to be solidly profitable, with improvements in all metrics, said McAdoo.

The bankruptcy of AMR Corp., parent company of American Airlines, has made it a potential merger partner for Delta, which has reportedly been analyzing such a deal. However, such a move -- which would create an entity with roughly 35 percent of the market -- would be scrutinized by federal regulators.

U.S. Airways Group, Inc. (NYSE:LCC), the fifth-largest U.S. airline by traffic, is also looking at a potential merger with American Airlines. TPG Group, a private equity firm, has also been contemplating an acquisition.

Shares of Delta were trading up 10 cents to $9.39 in morning trading Tuesday.

United Continental weighed by merger costs

Analysts expect United Continental to post a profit of 18 cents per share in the fourth quarter, down 59.1 percent from previous year's profit of 44 cents per share, excluding one-time costs, according to Zacks.

Revenue is projected to be $8.94 billion, up 6 percent from $8.43 billion in the previous year.

In addition with dealing with high fuel prices, United Continental continues to face integration costs following the $3 billion merger of United and Continental in 2010. The airline said earlier this month it expected $247 million in one-time costs in the fourth quarter, with around $170 million of integration costs. It is also facing labor negotiations with pilots, although it has signed a tentative agreement with flight attendants.

Shares of Continental United were trading up nine cents to $19.03 in morning trading.

Delta and United's competitors also have positive outlooks, said McAdoo of Avondale Partners.

Last week, competitor Southwest Airlines Co. beat estimates with earnings of 20 cents per share, up from 18 cents per share from a year earlier. JetBlue Airways Corp., which reports earnings on Jan. 26, is expected to be modestly profitable.

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