A Civil Aeronautics Board administrative law judge recommended yesterday that the CAB approve the proposed merger of Continental Airlines and Western Airlines.

In his decision, Judge John M. Vittone said factors in the airline industry that led to CAB disapproval of the same merger in July 1979 have altered substantially as airline deregulation has proceeded and shouldn't be a barrier anymore. ". . . Carrier activity and therefore potential competition have increased to such an extent in the Western United States that the loss of one applicant through merger will not adversely affect competition in the overall competitive scheme," Vittone concluded. by March 31 -- the proposed merger could run into trouble when Western shareholders, who have not approved the plan, are called on to give their approval. Also, there may be a competing proposal from UNC Resources, Inc. The Fall Church-based uranium-and coal-mining concern said in December that it had made an unsolicited proposal to merge with Western and has indicated some intentions to persue its efforts with the shareholders.

A Continental-Western combination also requires the approval of the president.

Continental and Western are two of the smaller major "trunk" airlines with similar characteristics: both have headquarters in Los Angeles, operate mainly in the West with similar aircraft, and were reasonably profitable until the jet-fuel cost increases and downturn in the economy began to affect airline performance.

According to the CAB, Continental ranks 10th among certificated airlines and Western ranks 11th; combined, they would form the nation's seventh largest airline.

In Vittone's recommended decision, he rejected the contention of board members two years ago that the merger of Continental and Western would leave many western routes with a duopoly -- the merged company and United Airlines -- strong enough to fend off potential entrants and make the two carriers less than vigorous price competitors. Noting the easier entry to routes now allowed unde deregulation, Vittone wrote, "I believe it unlikely that United and the merged carrier will be able to charge noncompetitive prices for their services in the West."