CHICAGO — After several years of financial darkness, U.S. airlines are seeing rays of hope. Passenger demand is stronger and costs are under control.

Despite recent fare increases, however, ticket prices are still too low for airlines' liking as they scramble to boost profits in the face of soaring jet fuel prices. The industry's solution? Reduce the number of available seats by gobbling each other up.

A wave of U.S. airline mergers could mean higher prices for travelers as overlapping routes are eliminated, experts said last week as discussions between United Airlines and Continental Airlines coincided with an announcement by AirTran to buy Midwest. And just last month US Airways began a hostile bid for Delta Air Lines.

Such deals are likely to draw regulatory scrutiny, and they raise the prospect for potential labor and service disruptions, as some consumer advocates warn.

Don't tell that to Wall Street. Airline stocks surged on the flurry of maybe-merger news, including AirTran's hostile takeover bid for Midwest, with other carriers also examining how to combine to keep up with bigger competition.

Numerous regulatory and other obstacles remain before any deal can occur, but industry observers said all the talks and recent airline restructurings have set the stage for big changes in the business next year.

"We're off to the races," said airline expert Terry Trippler. "2007 is going to be a major year — we are going to see some major consolidation."

A merger between United and Continental could allow the nation's second- and fifth-largest airlines to use their combined clout to reduce operating costs and become more profitable.

But would a mega-airline be good for consumers? That depends on who's asked.

Most experts agree that less competition would boost fares, but some see boons for passengers, too.

Trippler, with the Web site MyVacationPassport.com, said consumers will benefit in the long run from healthier airlines and, as a result, a much more stable system. He said competition should remain strong and fares shouldn't climb much.

Kevin Mitchell, however, said ticket prices would rise significantly and the public can expect service disruptions, repercussions from labor strife and more job insecurity in the airline industry if the carriers merge.