This time last year, the US airline industry looked beaten and bruised -- with two major carriers on the brink of bankruptcy and widespread labor strife.

But after billions of dollars of cost cutting, a merger and two major carriers operating under bankruptcy protection, the industry looks ripe for more consolidation, analysts said.

Mergers, which would give airlines more control over capacity -- and thus the power to raise fares -- have long been seen as a critical next step for the industry.

Analysts say a new round is on the horizon, and when it begins, carriers will not want to be left behind.

"It is a very, very strong likelihood that as we get into the early parts of 2007... things we have been talking about will start to come to fruition," airline consultant Dan Akins said. "Once one makes a move, I think the others will quickly follow."

Akins said that when bankrupt Delta Air Lines and Northwest Airlines get closer to their Chapter 11 exits -- and details of their reorganization plans emerge -- potential merger partners and investors will take a long look at those carriers' fleets, contracts and debt.

Akins predicted Northwest and Delta may be in a position to emerge from bankruptcy in early 2007.

The prospect of consolidation comes as major US carriers -- including American Airlines, United Airlines, and Continental Airlines -- fight back from weakness that followed the September 11, 2001 hijack attacks.

A slump in the US economy, low-fare competition and soaring fuel costs pushed several of them, including United, Northwest and Delta, into bankruptcy.

But now, thanks to cost-cutting and capacity reductions, the industry has taken a turn for the better and airlines are free to make longer-term plans and possibly consolidate.

US Airways Group, which was formed last year from the merger between US Airways and America West Airlines, has reported substantial benefits from its combination.

Chief Executive Doug Parker, long an advocate for airline consolidation, re-ignited speculation about mergers after he approached Delta about six weeks ago.

A US Airways spokeswoman said Parker was concerned that other carriers would make bids for Delta and that US Air would be left out. She said Delta did not jump at the suggestion.

But Parker said last week that US Airways would still consider being part of further industry consolidation.

US Airways' success with its merger and large amounts of cash chasing investments generally make the next few months prime time for further consolidation, CreditSights analyst Roger King said.

Largely better-than-expected second quarter results, strong summer travel demand and lower domestic capacity -- allowing airlines to raise fares and offset record-high fuel costs -- have added to calls for more industry consolidation and increased investor confidence.

The stronger take-over targets are those that are in bankruptcy, analysts said.

Bankruptcy protection from creditors allows carriers to streamline operations by shedding aircraft leases and rewriting labor contracts. Airlines with court protection can more easily slim down into attractive merger partners, said Helane Becker, an analyst with The Benchmark Co.

"It makes most sense to consolidate when at least one partner is in Chapter 11," Becker said.

Still, integrating airline operations can be difficult.

One key hurdle is combining unionized work groups that have different work rules and wages. They also have to optimize their routes and fleets and get regulatory clearance.

It's hard to predict how the US Justice Department will respond to a request by airlines to merge, said industry consultant Robert Mann.

The only sure way to find out is to propose a merger, he said. "You can either be a player in the field or you can get steamrolled."