By Ted Reed, TheStreet

A veteran analyst is forecasting that the airline industry will achieve a profitable fourth quarter for the first time since 2000.

"We attribute the dramatic change in fortunes to the capacity and financial disciplines exhibited by management in recent years," CRT Capital Group analyst Mike Derchin wrote in a recent report.

Derchin forecast that carriers will be profitable, although he foresees that revenue per available seat mile, a key industry metric, will slow to about 6% because of concerns regarding the economic outlook and tougher comparisons.

Derchin named his three favorite airline investments. One is the new United (UAL), which just merged with Continental.

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He said Delta (DAL) is "well along in its integration of Northwest."

His third and less conventional pick is JetBlue (JBLU), which is "entering a new, under-appreciated profitable growth phase following significant infrastructure improvements."

Derchin said that with continued capacity discipline and balance sheet deleveraging, consistent oil prices and the benefits of consolidation, "the stocks get too cheap to ignore" as investor focus shifts to 2011. He expects the U.S. airline industry to earn $3.5 billion in 2010 and $5.8 billion in 2011.

The shares of the eight largest airlines are all undervalued, he said. The remaining five are US Airways (LCC), American (AMR), Southwest (LUV), AirTran (AAI) and Alaska (ALK).

In afternoon trading Friday, United was up 4.9% to $26.97, Delta was down 2% to $11.54, and JetBlue was up 2.1% to $6.69.

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