Transport group Go-Ahead has warned of a further squeeze on profits as air and rail services continue to come under pressure.

The Newcastle-based firm runs the Thames Trains and Thameslink commuter lines, as well as bus services across the UK, and also has a substantial aviation services operation.

Pre-tax profits for the six months to December 29, rose to £21.2m, compared to £20.1m in the same period of 2001.

But operating profits fell during the six months from £26.2m to £24.1m despite a strong performance from the company's bus division.

Chairman Professor Sir Frederick Holliday said a recovery in earnings now hinged on an economic revival to bring back passengers.

He added: "The downturn in aviation services and the weakening in rail patronage will continue to affect group profitability for the remainder of the current financial year.

"Earnings will recover when confidence returns to the global economy and the London employment market resumes its upward trends."

The company, which cut around 700 jobs from a workforce of 6,500 in its aviation business in the wake of the September 11 terrorist attacks, also warned that long-term growth may not return in the airports division until 2003.

Half-year turnover at the aviation services division lifted to £84m from £38m after Go-Ahead acquired the ground handling operations of British Midland and Midland Airport Services in March.

But Go-Ahead reported a near-halving of operating profits at its rail arm to £4.8m. As well as Thames Trains and Thameslink, the division also includes London's South Central franchise, run as part of its Govia joint venture.

Commenting on the rail division, Chris Moyes, deputy chief executive said: "The aftermath of the Hatfield accident, and Railtrack's response to it, have damaged the perception of commuter service reliability.

"We anticipate that confidence in the service will gradually return, but we don't expect that to happen before next year."

Go-Ahead's bus services provided a much-needed lift as lower fuel prices and an easing of an earlier driver shortage lifted its performance.

The bus division improved operating profits from £14.8m to £17.6m. .