Stagecoach, the bus and train group, upgraded its earnings forecast by 18 per cent as passengers concerned about the rising cost of fuel abandon cars and aircraft in favour of trains and buses.

The company issued a more positive than expected trading update today, boosting investor confidence. The company's share price rose 10 per cent in early trading.

The Perth-based company said that its earnings per share would be 20p for the year ending this month compared with analyst forecasts of 17p after strong revenue growth in its bus and train divisions.

STagecoach's bus division reported a 6.9 per cent revenue increase in the 48 weeks to the end of March while rail, which includes the East Midlands franchise, grew by 13.1 per cent.

Virgin Rail Group, which operates the West Coast Main Line and is a joint venture between Stagecoach and the Virgin Group, grew by 11.2 per cent.

The company's North American division, which operates school buses, grew by 4.3 per cent.

In a statement, Stagecoach said: "We are encouraged by the current trading performance of the group and, while we are mindful of macroeconomic developments and of continuing cost pressures such as increased fuel prices, the outlook remains positive."

Stagecoach also confirmed that it would invest £71 million in a fleet of 584 new buses.

It has ordered 500 initially at a cost of £60 million and will buy the remaining buses later this year.

The vehicles will be more environmentally friendly, with engines optimised for low emissions and low fuel consumption.

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