Cheap delivery

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Royal Mail’s new boss is facing a tough balancing act. The former UK postal monopoly’s letters business, which still provides the bulk of its revenue, is in decline. Newly appointed Chief Executive Rico Back must keep beefing up parcel delivery to make up the shortfall. This means both competing and partnering with the likes of Amazon. Holding costs down should keep the online giant at bay.

The 5.7 billion pound group said on Friday that Moya Greene, its Canadian-born chief executive, will step down in September. During her eight years at the helm, she has led the vast postal business from state ownership to privatisation, listing it on the London Stock Exchange in 2013. Pre-tax profit has more than doubled since 2012, and Greene avoided an embarrassing workers’ strike by sealing a pay deal with unions. Once talks to avert a walkout began last November, Royal Mail shares rocketed. They were trading at 5.65 pounds on Friday morning, more than 70 percent above the IPO price.

Repeating that feat is a challenge for Back, who currently runs Royal Mail’s European arm. Amazon has been rattling investor nerves since the Wall Street Journal reported in February that it is planning to launch its own delivery service for businesses in the United States, putting it in direct competition with the U.S. Postal Service. The fear is that a similar UK rollout would put jeopardise Royal Mail’s future. After all, delivering UK parcels is the company’s bright spot. In the half year ending September 2017, revenue from pushing packages through letter boxes increased by 5 percent to 1.6 billion pounds, and now accounts for 44 percent of UK revenue.

Yet Royal Mail can see the threat. In areas where the incumbent has been less effective, like making quick deliveries, Amazon has moved in and launched a same-day delivery service. Royal Mail’s response has been to cut costs. Bernstein analysts reckon Royal Mail’s prices for UK parcels have declined from an average of 2.96 pounds in 2014 to 2.85 pounds last year, and expect the cost to decline further. If Royal Mail wants to ensure its parcel business delivers returns, being cheap and cheerful is a necessity.

[crimson king]

Greene avoided an embarrassing workers’ strike by sealing a pay deal with unions

That's one way of putting it. Another way would involve the words high, court and injunction.