* Cost cuts, volume growth boost underlying profit
* Aurizon sees coal volumes rising to 207-212 mln tonnes
* CEO sees tough union talks ahead (Adds CEO comments)
MELBOURNE, Feb 17 Top Australian coal hauler Aurizon Holdings Ltd reported an 18 percent rise in underlying half-year profit on Monday spurred by strong coal volumes and cost cuts, and raised its outlook for coal haulage this year.
Aurizon has benefited from customers like top global coking coal exporter BHP Billiton ramping up output to lower unit costs at a time of weak coal prices.
The rail group said it expects coal haulage volumes to increase by up to 9 percent to 207-212 million tonnes in the year to June 2014, up from an earlier forecast for about 5 percent growth, assuming no unusually heavy rain or strikes.
Meanwhile Aurizon, which has axed more than a fifth of its workforce since coming out of state ownership three years ago, is continuing to slash costs, pushing it rail fleet to run faster and fuller, with less down time and using less fuel.
"Overall then our focus remains on reducing costs, lifting productivity and improving those customer service levels. We do so in the context of continuing economic headwinds," Chief Executive Lance Hockridge told reporters.
The main hurdle over the next few months will be to reach new agreements with unions in its two key markets, Queensland and in the Hunter Valley in New South Wales, where the company has offered a 12 percent pay rise over three years.
"We do acknowledge that there is substantial work in front of us in that industrial relations space," Hockridge said, adding that the company faces the threat of a strike by train drivers in the Hunter Valley in the next few months.
Underlying profit rose to A$263 million for the six months to December from A$222 million a year earlier, boosted by A$59 million in cost savings and a 13 percent jump in coal volumes.
That beat a forecast from UBS for an underlying profit of A$258 million.
However net profit sank 39 percent to A$107 million on the back of job cutting costs and A$197 million in writedowns, flagged in November, due to a planned culling of its trains over the next four years and pared projects, including a railway for Glencore Xstrata's shelved Wandoan project.
The company, formerly called QR National, declared a first-half dividend of 8 cents, nearly double the amount it paid a year earlier, in line with its new policy of paying out 60-70 percent of earnings.
Aurizon shares rose 2.2 percent in early trade to a record high A$5.22, beating a 0.4 percent gain in the broader market. The stock has risen 40 percent since the start of 2013.
(Reporting by Sonali Paul; Editing by Andrew Heavens and Richard Pullin)