Australia Post 'at turning point' for letter or worse

Australia Post's managing director has warned that the continuing losses in its traditional letter services would overwhelm its fast-growing and profitable parcel delivery business without further change.

Ahmed Fahour said Australia Post had reached a "turning point" in which cost management and strong parcel delivery business would not be enough to compensate for the losses in traditional mail business.

"That trend of decline in our letters business is accelerating, and what we need to do is find new ways to change and to innovate," he said. "This trajectory of letters business will overwhelm, in the future, the positive developments in all other things we do."

Australia Post's traditional letters business lost $218.4 million in the last financial year and now delivers 1 billion fewer letters a year than it did five years ago, a fall of 30 per cent from its peak. Mr Fahour, who was last year paid $4.75 million in salary and benefits, described Australia Post's situation as similar to Australia's two-speed economy a few years ago.

"It is a warning to say, we have one business in decline and another going up," he said, "We should be careful not to stop the developments that we are making, because if we do, the one going down could potentially bring down this wonderful parcel business."

Despite the challenges from Australia Post's legacy letters business, the mail group delivered a full-year net profit of $312 million as the government-owned monopoly cashed in on online shopping.

This translated to a $244 million windfall dividend for the federal government's budget, representing a payout ratio of 78 per cent.

Domestic parcels volume grew by 9.3 per cent last year.

The record result was up 11 per cent from last year and was boosted by the acquisition of the remaining 50 per cent stake in the courier StarTrack Express.

Mr Fahour hosed down speculation that the Post would end its five-day letters delivery services, and said posties had been used as parcels delivery men to compensate for the decline in letters.

"Twenty-five per cent of all our parcels are delivered by posties," he told Fairfax Media. "Just because the letter is dying, it does not mean the postie has to die."

Meanwhile, with Britain's Royal Mail making its $7 billion-plus sharemarket listing last week, Mr Fahour said the speculation about potential privatisation of Australia Post was up to the government.

Australia Post, which has 35 per cent of the domestic parcels market share, estimates that 70 per cent of the parcels it delivers originate in Australia. The big Australian retailers such as David Jones, Woolworths and Coles invested heavily in their multi-channels strategy in the past 12 months to counter international competition. Mr Fahour said domestic online retailers would be able to withhold onslaught from overseas competitors.

"My personal prediction is the ratio won't change much over the next two to three years," he said. "I think once big retailers make moves like that, they are going to compete very, very hard for the retail dollars of Australian shoppers, therefore will provide very stiff competition."