UPDATE 2-Go-Ahead says to beat its expectations, shares surge

(Adds FD, analyst comment, detail, background, shares)

By Rania El-Gamal

LONDON, June 19 (Reuters) - British bus and train operator Go-Ahead Group (GOG.L) is on track to beat its profit expectations as more people switch to public transport amid rising petrol prices, it said on Thursday.

Go-Ahead shares leapt as much as 14 percent to 1,740 pence in early trading, helping to boost other transport stocks which have suffered from concerns about their rising fuel bills.

Go-Ahead said it would beat its performance from last financial year, when it reported profit before tax and one-off items of 110.1 million pounds ($215.9 million), driven by strong growth in both its bus and rail divisions.

Go-Ahead is currently expected to report profit before tax and one-off items of 111.2 million pounds for the year ending June 30, according to the median estimate of 10 analysts polled by Reuters Estimates.

Investec analysts said they were likely to raise their profit forecasts by around 7 percent. They are currently forecasting pretax profit of 108.1 million pounds for the year ending June 30 and 117.3 million for the year after.

Finance Director Nick Swift told Reuters that as fuel prices rise more people are shifting away from their own cars to public transport.

"That's what we expect to see -- an increase in people using public transport," he said in a telephone interview.

"Public transport is relatively cheaper... and service is getting better."

However, Swift said that while further growth is expected next financial year, business conditions could be challenging due to rising oil prices.

"It is too early (to say), but (business) will continue to be tougher," he said when asked about an outlook for growth in 2009.

Go-Ahead shares, which fallen almost 40 percent this year, were up 12.7 percent to 1,716 pence by 0855 GMT, valuing the group at around 731 million pounds.

Other London-listed transport stocks also gained, with Stagecoach (SGC.L) up 7 percent, FirstGroup (FGP.L) up 3.6 percent, National Express (NEX.L) up 6.3 percent.

"Our bus division is performing well. We have continued to improve margins, despite higher fuel costs and expect to deliver a significant increase in operating profit for the full year compared with the 55.8 million pounds achieved last year," Go-Ahead said in a statement.

Go-Ahead said it now had bus fuel hedges in place for 100 percent of next financial year's needs to June 2009 and 50 percent of the following year.

While the credit crunch and record oil prices are taking their toll on aviation industry world wide, Go-Ahead expects positive results from its aviation services operations after it improved its structure, won new contracts, increased prices and expand its services.

"Aviation going through tough time where fuel is a bigger cost," said Swift.

He said results from the firm's aviation services operations will break even this year after a loss of 3.8 million pounds in 2007, but will start being profitable in the coming two years as their investments in the sector will start to pay back.

The firm also said it expects the full year operating profit from its rail division to increase after last year's 66.1 million pounds. Passenger revenue growth remains at 13.2 percent in line with first half growth, said Go-Ahead.