BUS and train company Arriva last night warned of further price rises because of soaring fuel bills.

The Sunderland-based operator said it saw operating profits fall 2.5 per cent to £123.1m after its diesel costs for bus services rose by £6m last year, and its failure to keep the Northern trains service meant its UK train earnings more than halved.

Outgoing chief executive Bob Davies said fuel costs were expected to rise by another £14m in the UK this year, and fare increases were already being implemented.

These rises would vary depending on the area, but most would be single figure percentage increases.

He said: "When I joined Arriva seven years ago, fuel was much cheaper. Not so long ago, we were paying less than 10p a litre - now we are paying anything beyond 25p a litre."

However, hedging its fuel bills by arranging deals in advance, the growth of rail operations in Germany and the Netherlands and the sale of its vehicle rental business to Darlington's Northgate plc left Arriva in good shape, the company said.

Arriva has about 30,000 employees across Europe and carries more than one billion passengers a year.

The introduction of free off-peak local bus travel for over-60s and passengers with disabilities in England would stimulate growth, it said.

It was also in talks with local authorities about subsidies for some routes - mainly rural.

However, it missed the input of the Northern train franchise, which ended in December 2004 and had brought in £285m that year.

Arriva has qualified to bid for the south-western franchise and is considering bids for new east and west Midlands contracts as well as the cross-country service currently run by Virgin.

Group operations manager David Martin, who will take over as chief executive next month, said while the company would continue to look for UK rail expansion, mainland Europe offered many opportunities.

He said: "It's a large market where we are one of the major private operators but, despite that, are still quite small in the scheme of things."