Australia Post managing director Ahmed Fahour has warned the continuing losses in its letter services would overwhelm its fast-growing and profitable parcel delivery business without more change to the business.
Mr Fahour said Australia Post had reached a "turning point" in its business trajectory where 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 letters business lost $218.4 million in the last financial year and now delivers 1 billion fewer letters per year than five years ago, a decline of 30 per cent from its peak. Mr Fahour, who was paid $4.75 million in salary and benefits last year, 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, the mail group delivered full-year net profit of $312 million as the government-owned monopoly cashed in on the online shopping craze.
This translated to a $244 million windfall dividend for the federal government's under pressure budget - representing a payout ratio of 78 per cent.
The number of domestically delivered parcels 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 courier StarTrack Express.
Mr Fahour hosed down speculation that Australia Post would end its five-day letter delivery services and said posties had been used to deliver parcels to compensate for the decline in letters.
"Twenty-five per cent of all our parcels are delivered by posties," he said. "Just because the letter is dying, it does not mean the postie has to die."
With Britain's Royal Mail making its $7 billion-plus stock market listing last week, Mr Fahour said speculation about the potential privatisation of Australia Post was a matter for the government.
"I am not aware of any change in policy on both sides," he said.