TRANSPORT group Go-Ahead yesterday said an "excellent" performance from its rail business helped to boost profits by a fifth, but warned the division could move into the red this year.

The Newcastle-based company reported a record year, with underlying pre-tax profits up by £8.2m to £110.1m in the year to June 30, and the group adding it is well-positioned for further growth in the new year.

Go-Ahead's rail section offset problems experienced at its airport services operation, which suffered amid the security disruption at Heathrow and Gatwick. The group also saw strong progress from its bus division.

However, it warned the rail business is set to see a tougher year ahead, as rising cost pressures and a lack of Government subsidies are expected to hit operating profits.

Go-Ahead said even the lift from its newly-won Midland rail franchise was unlikely to offset the impact of the lost Department for Transport (DfT) subsidies, offered on a sliding scale for a limited period with its Southern and South-Eastern franchises.

The rail business last year made operating profits of £66.1m, up from £42.5m the year before, despite seeing the costs involved in bidding for new franchises more than double.

Go-Ahead revealed it spent £3m pitching for new rail work, up from £1.4m.

The firm lost its Thameslink franchise in March last year, but picked up the South-Eastern network, which started the following month.

Go-Ahead also said passenger numbers soared on its Southern network, up 14 per cent in the year, against a rise of seven per cent.

The company's bus division was hit by an extra £1m in fuel costs, although strong passenger growth and ticket revenues helped drive an overall 19 per cent rise in operation profits.

A ''difficult'' year for the firm's aviation services business saw operating profits wiped out, with Go-Ahead reporting a loss of £3.8m against £8.6m profit the year before.

Lost contracts at Heathrow and three regional airports contributed largely to the decline in performance, alongside last summer's security alerts.

Sir Patrick Brown, chairman of Go-Ahead, said the division's results were disappointing, but hailed the progress of the group as a whole.

"Security disruption at all UK airports, particularly Heathrow and Gatwick, led to unrecoverable cost increases. This coincided with bad weather and the loss of some contracts," he said, adding that new contract wins with British Airways at four UK airports should put the operation back on the road to recovery.

"This has been a record year for the group and the new financial year has started in line with the board's expectations.

"We are well-positioned to make further progress in the new year."