The US airline industry will likely post losses this winter, but return to profitability as early as the second quarter of next year due to falling fuel prices and capacity reductions according to an analyst.

US airlines may lose USD$100million in the fourth quarter and USD$3 billion for 2008, Calyon Securities analyst Ray Neidl said.

He, however, expects the industry to earn USD$5 billion next year and does not see any immediate danger of bankruptcy for airlines.

"The carriers have positioned themselves such that they should be able to survive the credit challenges until spring, when traffic demand is expected to increase," Neidl said.

He also noted that airline stocks were cheap and should rebound with an economic recovery.

"It is hard to call a bottom but we may be near one," Neidl said, adding that it was not too early for investors to begin buying the sector.

However, risks remain high over the next 12 months due to uncertainty over how long and deep the recession will be.

Earlier this week, Neidl upgraded AMR, Continental Airlines and AirTran to "add" from "neutral", saying initiatives by the companies to cut costs and falling oil prices could help results.

Neidl's top picks are Delta Air Lines, Alaska Air Group and Continental Airlines -- all companies that have solid route systems, crisis-oriented managements, manageable debt loads, adequate balance sheets and good cost structures, he said.

"Airline managements are finally running this sector as a business and not a hobby as they looked for market share," Neidl said.