Cautious outlook hits Stagecoach

Stagecoach operates South Western trains and owns half of Virgin Trains

Stagecoach, the bus and rail group, has reported strong six month profits but warned of challenging conditions to come and said it would be cutting jobs.

Its shares closed down 16.5%, despite pre-tax profits for the six months to the end of October being £105.2m, up 24% on a year previously.

The group said bus operations would be protected from the economic downturn.

But it said it would be carrying out a cost reduction programme in its rail businesses that would include job cuts.

Stagecoach runs the South Western and East Midlands train franchises and owns 49% of Virgin Trains, which operates the West Coast mainline.

Its bus brands include Megabus and Oxford Tube.

"Rising consumer household bills, as well as increasing environmental awareness, are helping drive modal shift to our greener, smarter and good value bus and rail services," said Stagecoach chief executive Brian Souter.

"We expect our bus businesses to continue to perform well through difficult economic conditions."

But the statement predicted a sharp downturn in employment, especially in central London and warned that it would hit demand for its rail services.

South Western, for example, is particularly reliant on commuters.

"As a result, we are taking action now to ensure that our UK rail businesses remain competitive," said chairman Robert Speirs.

"Our plan includes a cost reduction programme in our rail operations, which will include headcount reductions."