Australia Post calls for reforms as it predicts losses

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The once highly profitable Australia Post has called for reforms after forecasting that it will make a loss this year because of its dwindling letters business.

The company now wants the government to allow it to launch a slower letters delivery service, with customers then paying a priority mail rate to continue using the current mail delivery standards.

The state-owned postal operator issued first half results today showing its after-tax profits down 56% compared to the same period last year.

Australia Post said that the 8.2% year-on-year decline in addressed letter volumes seen in the latest six months has been the worst decline since volumes began to fall in 2008.

The situation has pulled the letters business into a A$151m loss during the half-year, dragging profits for the group as a whole down to A$98m.

The company said losses in the letter business are set to “overwhelm” the profit generated by the parcel business this year, predicting that for the full 12 months it will make its first annual loss since 1982.

Managing director Ahmed Fahour insisted that the results demonstrated an “urgent need” for regulatory reform in the letters market to ensure a stabilised mail service in future.

He said the company had reached a tipping point where it could no longer manage the decline of letters volumes by cutting costs.

“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,” said Fahour.

“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 now wants government approval for a new “Regular” letters service that will take an additional two days for delivery, with the existing service becoming a “Priority” service.

The company also wants to relax its price cap “to better reflect the real cost of running the letter service”.

Fahour said: “We remain committed to providing services our customers have told us they value most, including our five-day-a-week delivery service, maintaining our nationwide Post Office network and providing access to a world-class parcels service.”

“Disappointing”

The Communications Electrical Plumbing Union said today that “disappointing” financial results at Australia Post was no excuse to reduce service standards.

New South Wales branch Secretary Jim Metcher said: “Today’s results, while disappointing shouldn’t be used to justify the massive, and potentially damaging changes that some have argued for without detailed consultation with all of the stakeholders. Australia Post needs to be upfront with its staff and customers about how these planned changes are going to effect their jobs and services.”

The Post Office Agents Association Ltd, which represents operators of licensed post offices, said it was “disappointed” that Australia Post waited until its letters losses were so large to propose postal reforms.

The organisation said it had discussions with Australia Post two years ago regarding the need for reforms.

POAAL said a string of losses at Australia Post could kill its ability to invest in new technology and infrastructure to keep up in the increasingly competitive parcels market, along with markets like financial services.

“It’s obvious that reform is needed,” said POAAL Director Bob Chizzoniti.

“The underlying problem of customers migrating away from letters towards electronic communications is still there. The way that Australians use the mail is changing. We can’t turn back the clock. Australia Post’s entire operations need to be re-assessed to take into account the needs of 21st Century Australian society.

“While growth in parcels revenue has helped cover the losses in letters to this point, in an increasingly competitive parcels market Australia Post can’t rely on parcel revenues to prop up the rest of its business.”

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Feb 24 (Reuters) - Australia Post on Tuesday warned that Japan Post Holdings Co Ltd (IPO-JAPP.T) will "cherry-pick" profitable services if it entered the country, and said it may have to cut services for the first time in 30 years due to intensifying competition.

Australia Post Chief Executive Officer Ahmed Fahour told a Senate inquiry that unless he received permission to raise stamp prices for next-day delivery the 206-year-old state-owned firm would have to consider cuts to vital services.

"If these competitors are allowed to cherry-pick the most profitable parts of our business with no obligations to regional or rural Australia, who's going to take care of regional and rural Australia if Australia Post is not around?" Fahour said.

"This is the last year that we're going to be able to do it on our own. If reform doesn't come in, we're going to need money from somebody or we're going to need to reduce services."

Postal services around the world are facing dramatic declines in their core letter-delivery business as customers turn to the internet for all forms of correspondence from billing to greeting cards.

While some like the United Kingdom's Royal Mail Plc and Germany's Deutsche Post AG have been deregulated and privatised, enabling them to slash costs and set their own prices, Australia has resisted calls to sell its postal service.

That has left Australia Post relying on a pickup in retail freight linked to the online shopping explosion, the service Australia Post expects Japan Post will target if its A$6.5 billion ($5.05 billion) takeover of Australian freight firm Toll Holdings Ltd succeeds, as expected.

Fahour said Toll would become a "commercial player ... who does not care about community services" if it came under the control of Japan Post, one of the world's largest companies. It would "try and use the balance sheet of Japan Post Holdings to increase the level of competition", he added.

A day earlier, Australia Post warned that in 2015 it would post its first annual loss since being established as a registered company in 1989, after an 8.2 percent decline in letter volumes led to a 56 percent slump in net profit for the six months to Dec. 31.

The slide in letter volumes - the result mainly of competition from email and other electronic messaging services - was double the rate of decline in the same period a year earlier, Fahour said.