Royal Mail putting itself out of business

[TrueBlueTerrier]

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Royal Mail is testing the elasticity of its demand curve. A sharp rise in the price of stamps has caused a sharp fall in the number of letters posted. Is it a solution or is it testing the model to destruction?

The price of first-class stamps rose by 30 per cent in April 2012 with second-class stamps rising nearly 40 per cent. Now figures show that 700m fewer letters have been sent in the subsequent half year – a fall of 9 per cent.

The result is that revenues rose just 2 per cent, the volume fall offsetting almost all the price increase. But the danger is that Royal Mail has not yet seen the full effect of those price rises. Inertia – and using up cheap old stamps – means it takes time for our posting habits to change to match the new cost.

Figures for the next six months should give a better picture of how the prices have impacted on the business – and those could be the last accounts before the government tries to sell the business.

There is good news in the postal figures. Firstly, even if revenues are flat, lower volumes should mean lower costs and thus better profits. Second, almost half the mail posted in junk mail – but business customers make rational decisions, and if they’re still using Royal Mail, they could be there for the medium term.

But mail volumes were falling steadily before the price rise and will continue to do so as people prefer email. The parcels division of Mail is benefiting from the internet as it delivers goods bought over the web, but the internet remains the threat to letters. And floating a shrinking business will be a hard privatisation.

The government would like to raise £4bn, projecting Royal Mail into the FTSE 100. Those second-half figures will need to show that the elasticity of demand can bounce if it is to achieve that.

[blackadder]

to be honest who buy a buisness that delivers unadressed mail and packets ?

[fishtank]

to be honest who buy a buisness that delivers unadressed mail and packets ?

Someone who would love to get their hands on a business with revenues of £7Bn and a cost base where 60+% is labour related...and therefore ripe to make savings.
As much as we love to call it a basketcase Royal Mail is a potential goldmine if you're prepared to take on the union and slash the terms and conditions of the workforce.

[Lounge Lizard]

"The price of first-class stamps rose by 30 per cent in April 2012 with second-class stamps rising nearly 40 per cent. But the danger is that Royal Mail has not yet seen the full effect of those price rises. Inertia – and using up cheap old stamps – means it takes time for our posting habits to change to match the new cost." - absolute nonsense in that these 30% and 40% rises were for stamped mail which is only about 10% of letters posted, bugger all to do with allegedly 700 million fewer letters and a 9% drop in revenue predominently from business mail for which prices sensibly are more competative .

[demon]

60p for a stamp still to f***ing cheap if you dont like it send your letter on the bus or by a taxi see how much they will charge you to get it there the next day

[Lounge Lizard]

60p for a stamp still to f***ing cheap if you dont like it send your letter on the bus or by a taxi see how much they will charge you to get it there the next day

- yes, or ask one of those Down Stream Access companies how much they would charge.