Australia Post slumps to annual loss of $200.3m, letters business books $384m loss

CEO Paul Graham says government reforms are urgently needed before the loss-making letters division swamps the rest of the Australia Post business.

Australia Post boss Paul Graham believes his beleaguered letters business, which last year lurched to a loss of $385m, will never be profitable again and hopes the massive financial burdens now weighing on the mail carrier will spur the federal government to bring in much-needed reforms.

On Thursday, Australia Post reported an annual loss of $200.3m, just its second loss since becoming a self-funded government enterprise in 1989, as long-running warnings from Mr Graham that the slow demise of its traditional letters business would blow a massive hole in its finances came to fruition.

The mounting losses, which have no end in sight, follow Mr Graham’s comments earlier this year – and repeated again now – that the regulations the mail service operated under were “no longer fit for purpose”, with it governed by a parliamentary act created before the internet and smartphone revolutions, and whose staleness now threatens the financial viability of the 214-year-old institution.

In March, the Albanese government launched a discussion paper and undertook community consultation on the modernisation of postal services. The consultation comes as more consumers embrace online rather than over-the-counter services and the use of letters continues to rapidly decline.

It received from Australia Post a strong submission laying out key reforms that were vital to resurrect the profitability of the mail carrier, as well as submissions from as many as 1000 other interested parties and individuals.

Mr Graham said on Thursday the key issues for Australia Post were the continued guaranteed and regulated daily mail delivery service on weekdays, which was becoming increasingly irrelevant and costly, as well as the price of stamps.

It comes as Australia Post’s dip into the red following a profit of $55.3m in 2022 was mostly driven by ballooning losses in its traditional letters division.

Group revenue was flat at $8.97bn. Parcels and services revenue of $7.3bn was up 0.9 per cent on last year. Letter volumes, at 2 billion, was down 7.8 per cent on last year while losses in the letters business of $384.1m, was up 50.2 per cent from 2022.

Mr Graham told The Australian he didn’t believe its traditional letters business would ever be profitable, with vital reform needed by the federal government before the wave of losses engulfed Australia Post and ultimately the taxpayer.

“Obviously with the numbers we are releasing today hopefully that spurs a sense of urgency because every day that goes by that we don’t have reform is another day that we can’t initiate the initiatives that we need to get Australia Post back to sustainable profitability,” Mr Graham said.

He said the mail carrier has been “lobbying hard” the federal government to introduce changes around issues such as weekday mail deliveries and the complex framework around lifting the price of stamps to help drag it back to profitability.

“We continue to apply focus on encouraging the government to come out with what they are willing to do and we hope that is sooner rather than later,” he added.

Australia Post’s traditional letters business is in decline. Picture: NCA NewsWire/Kelly Barnes

“Since 2018 we have delivered 800m less letters but added 800,000 extra delivery points due to the growth of the population.

“The average punter is not that fussed about the price of a stamp because they don’t mail much these days … they actually don’t think they still get mail five days a week because they don’t see much mail but we have the obligation to deliver five days a week.”

Mr Graham warned that more pain is yet to come and its losses will continue to grow as the mandated weekday delivery of mail to Australian homes and businesses was the most significant cost to the company.

This was shown out in the 2023 results. Australia Post captured business efficiencies of $237m in 2023 but the estimated cost of its Community Service Obligations – which covers mail deliveries – was $442.2m, up 26.9 per cent on last year.

Mr Graham said Australia Post was now exhibiting a “distinct two-speed business” with its letters business weighing heavily on its thriving e-commerce-driven parcels business, retail and other services.

He said despite all efforts, it was simply not possible to stop the structural shift in the way Australians are using postal services.

“The headwinds Australia Post is facing into aren’t new and it’s my job along with the leadership team to transform and modernise Australia Post, so it can once again be a financially sustainable business.

“If we do everything in our power to run this business well and we get a favourable regulatory response towards modernisation, I’m confident that Australia Post will return to profit. Without this support, the 2023 loss will be followed by many more. Inaction could result in a greatly devalued Australian asset.”

In May the federal government conceded in its budget papers for the first time that it might have to prop up Australia Post financially as the mail carrier, which could potentially punch a hole of hundreds of millions of dollars in the government’s finances.

Buried in the budget papers the government listed under its summary of contingent liabilities in its statement of risks a new entry for Australia Post under the heading “Australia Post’s financial sustainability”.

“Given Australia Post’s deteriorating financial position, there is a risk that the Australian government will need to consider providing financial assistance to Australia Post in the future,” the budget papers said.

Mr Graham wants more commercial freedom to set the price of a stamp, to increase prices to reflect inflation and other costs and to have mail delivery brought back to mirror the decline in mail volumes.

Mr Graham also said he was seeing a slowdown in online shopping as consumers pulled back on spending in the face of stretched household budgets. He said he had seen a “moderating” of online shopping parcel volumes recently.

“We are seeing a flattening of growth, we are seeing consumers shop across more websites … to try and see if they can find a bargain or first-time discount and we are also seeing people hold their pennies back for these sales events like Cyber Monday, much more discretion in what they are buying.”