The airline industry may be getting smaller again. U.S. Airways (LCC) and UAL’s (UAUA) United Airlines have resumed merger negotiations, The Wall Street Journal reported late Wednesday, citing anonymous sources. A deal between the companies would create the second-largest U.S. carrier behind Delta (DAL).

The talks come two years after the official merger of Delta and Northwest, a deal that offered a proof of concept for large-scale consolidation. United Chairman and Chief Executive Glenn Tilton has said the Delta merger won the market’s approval. “The investor seems to have spoken,” he told the Financial Times in February. “The market seems to have suggested that scope and scale in a global business are important.”

Even before the Delta deal, mergers were becoming increasingly common in the industry, as more carriers looked to remain profitable, maximize passenger capacity on flights and ultimately avoid bankruptcy, says Basili Alukos, an analyst who covers the industry at Morningstar. “The system as it is right now has too many expenses for the amount of revenue it’s getting,” he says. By merging, most airlines seek to reduce overhead in several areas, including removing route overlap — especially when both carriers’ planes are taking off with empty seats, he says.

For investors, a merger should boost share prices, especially for the airline that is being acquired. Both companies notched big gains at midday Thursday. “At the end of the day, consolidation is 95% cost cutting and 5% revenue,” says Alukos. The weaker player is U.S. Airways, which has a minimal presence abroad and competes directly with Southwest (LUV) for customers on almost 80% of its routes, he says. The company often engages in price wars for passengers.

For United and U.S. Airways, these negotiations mark the third round of talks since 2000. Talks in 2000 and 2008 broke down because of antitrust and union issues.

Not that this deal has been closed. Alukos says a more profitable merger could be made between United and Continental (CAL), which, if joined, would service more flights and hubs throughout the country. (United and U.S. Airways’ hubs are close to each other and primarily on the coasts.)

Looking forward, investors should expect more deals in the works, particularly among low-cost carriers and legacy carriers that together can penetrate the domestic and international markets. One possible merger on the horizon is between Jet Blue (JBLU) and AMR (AMR), the parent of American Airlines. In March, the firms signed a partnership for connecting flights in New York and Boston.

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