BUS and train operator Go Ahead has warned that high fuel costs are hitting profit margins in its bus division.

The Newcastle-based plc, which operates Go Northern, Go Gateshead and Go Wear buses in the region, said the trend was expected to continue into next year.

A spokesman said the company would not disclose any figures, but stressed that it was an industry-wide problem.

He said the group was having problems in securing hedging deals, which allow it to buy fuel in advance at potentially cheaper rates.

"It is very difficult to find hedging arrangements that are advantageous or cost effective to the company and it's having to pay the going rate," he said.

Despite both fuel costs and wage inflation having an impact on margins for the bus division, the firm said it was trading in line with expectations.

As well as County Durham and Tyne and Wear, Go-Ahead runs buses in London, Brighton, Oxford and Poole.

It said its bus business in the capital had continued to increase revenues and benefited from bonus payments from London's transport authorities due to high performance.

Outside the capital, there had been some recent evidence of a reduction in the pace of volume growth, but good increases in revenues in the year had again been achieved.

Go-Ahead, which is in the process of buying Isle of Wight bus company Southern Vectis, is continuing to look for further acquisition opportunities.

The group said its Southern rail franchise had increased passenger volumes and had significantly improved operating performance as it introduced new trains.

It said trading at its aviation services business, which carries out ground handling at airports, had also shown a good year-on-year improvement and that it anticipated further progress.