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

The Newcastle-based firm, which runs the Thames Trains and Thameslink commuter lines, last year took over the South Central franchise to run services between Brighton and London.

The company also has a substantial aviation services operation and the impact of the September 11 terrorist attacks on air travel combined with the post-Hatfield crisis in the rail industry has put Go-Ahead under pressure.

Operating profits fell during the six months to December 29 but the year-on-year decline from £26.2 million to £24.1 million was pegged by 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."

Shares in Go-Ahead fell more than 9% following the update.

The company, which cut hundreds of jobs in its aviation business in the wake of the terrorist attacks, also warned today that long-term growth may not return in the airports division until 2003.

The company said its ground handling operations had been most affected at Gatwick and Heathrow, although Stansted, Luton and other regional airports have maintained business volumes as low-cost carriers continue to expand.

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

Operating profits were broadly unchanged at £3.6 million, although the division's margin fell from 8.9% to 4.3% during the period.

Go-Ahead also reported a near-halving of operating profits to £4.8 million at its rail arm, which also includes London's South Central franchise, run as part of its Govia joint venture.

A reduction in London-based tourism and a weakening of the employment market have added to problems in the wake of the Hatfield repair programme.

Sir Frederick said: "The aftermath of the Hatfield accident, and Railtrack's response to it, have also severely damaged the perception of commuter service reliability.

"Passenger and revenue growth have been badly dented in consequence."

However, 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 £14.8 million to £17.6 million, while margins were also slightly higher at 13.1%.

Across the group, bottom-line pre-tax profits were £20.7 million, compared with £20.1 million a year earlier.

Shareholders will receive an interim dividend of 5p a share, an improvement on the 4.3p offered last year.