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Australia Post’s big loss leaves Fahour begging for reform

Australia Post is expecting to make its first annual loss since 1982 — before it was corporatised — as letter volumes fall off a cliff, the government-owned corporation has announced.

Post is struggling to contain losses as the decline in letters being sent accelerated to 8.2% year-on-year, despite parcel services revenue and business parcel volumes rising by 4% and 5% respectively.

Although Australia Post reported a first-half financial year profit after tax of $98 million, it’s expected this will become a loss over the quieter second half of the year. Letters services lost $151 million, a deterioration of 57% on the first half of last financial year.

CEO and Managing Director Ahmed Fahour used the announcement to push for regulatory reform of its letters service to help stem the losses. He said in a statement:

“The immediate challenge for our business is clear. We have been carefully managing the real decline in our letter volumes for the past seven years. But we have now reached a tipping point where we can no longer manage that decline, while also maintaining our nationwide networks, service reliability and profitability.

“We urgently need reform of the regulations that apply to our letters service. A government-commissioned external report last year predicted that — without reform — Australia Post will incur $12.1 billion cumulative losses in letters, and $6.6 billion for the enterprise over the next 10 years.

“This year we are forecasting a full-year loss for the first time. It is urgent we make changes this year to ensure we can continue to maintain a reliable, accessible postal service for all Australians.”

Australia Post wants to jack up stamp prices and price express delivery at a premium, but government help stalled last year amid fears of a political backlash. Fahour told a Senate committee hearing last year:

“This business is disappearing in front of our eyes. We are not recovering our costs, which is why we are losing a tonne of money.”

The company had never been subsidised by government, he said today, but the way Australians send mail is changing:

“Either we get a massive injection from the government to keep the business going, or they give us the permission to manage the business and therefore no subsidy is required and the business can continue.”

Australia Post is seeking government approval to implement a two-tier stamp system, under which the current schedule of next-day delivery for city services and second business day delivery for city to country services would be regarded as the “priority” service, likely attracting a stamp cost of between $1.25 and $2. The regular service, perhaps costing between 70c and $1, would mean letters would take an extra day to arrive.

The proposed price increases are based on the estimated cost of delivering a letter being around $1.

The national mail carrier says it “wants the ability to adjust prices to better reflect the real cost of running the letter service, so it can reduce the losses and sustain the mail service for all Australians.”

Australia Post is undertaking digital consultations on how Australians use its services and their expectations for the future. Fahour said in August:

“The community’s falling reliance on letters is clearly evident in the declining volume of mail that’s being sent in Australia.

“Our mail volumes always tracked in line with GDP — for 190 years — until 2000. Then they began to gradually decline for about eight years until 2008 and since then we have fallen off a cliff. Unfortunately, the rate of decline from 2008 is not linear. It started at 2-3%, then became 4-5%. Today [August 2014], it’s 6%-plus.”

Author Bio

David Donaldson

David Donaldson is a journalist at The Mandarin based in Melbourne.