by Hamish Barwick

Malcolm Turnbull throws Australia Post a lifeline

Jun 24, 20143 mins
GovernmentRetail Industry

A three-day letter delivery system, rather than five, could help reduce Australia Post’s letter business operating costs, according to Federal Minister for Communications, Malcolm Turnbull.

Speaking at the Committee for the Economic Development of Australia (CEDA) State of the Nation conference in Canberra today, Turnbull told delegates that approximately 80 per cent of Australia’s letter business costs are fixed.

“Over 80 cents of every dollar lost in letter revenues goes straight to the bottom line but the postie has to go up and down your street every day whether his bag of letters is full or nearly empty,” he said.

“Because the company has a regulatory obligation to provide five-day a week letter delivery to 98 per cent of homes and businesses, letter sorters must work through the night to ensure uniform delivery times are met for all letters, regardless of their urgency or importance.”

He added that the Federal Government is due to release a Boston Consulting Group (BCG) study into Australia Post’s regulated letters business later today.

“BCG’s analysis of a 2014 survey of 8,000 customers conducted by Australia Post showed only approximately half of survey respondents were willing to accept a move to three-day a week letter delivery,” said Turnbull.

He added that the majority survey respondents are more willing to accept the change when knowing the true costs of operating on a five-day week system.

“Among the respondents to the Australia Post survey, an average of 5 per cent said they would be willing to pay $25 a year to retain current standards,” Turnbull said.

“Of those aged above 60 years, 37 per cent said they would oppose three day delivery but only 5 per cent said they would pay the $25 a year premium.”

According to Turnbull, Australia Post reported revenues of $5.8 billion in the financial year 2012-13 and has returned a dividend to the Federal Government every year since corporatisation in 1989.

“In the last five financial years alone, Australia Post has paid nearly $966 million in dividends to Government and has not missed a dividend since corporatisation.”

However, he acknowledged that the “halcyon days” were over and that big changes are needed at Australia Post.

“Without them there is only the prospect of a sea of red ink and ultimately ruin,” said Turnbull.

Speaking earlier today at the CEDA conference, Australia Post CEO Ahmed Fahour said the organisation is trying to avoid the fate of photography company Kodak by offering services such as digital mailboxes, parcel delivery and two-speed letter deliveries.

He told delegates that its letter business is expected to lose $300 million in 2014.

“Beyond that, we are projecting an annual loss of $1 billion per annum. That is a hole that is far too big to be filled by profitability from our parcels business.

“Without reform, we will need to fund the losses in our letters service through asset sales. We don’t want to be the next Kodak,” he said.

According to Fahour, it has had an 8-10 per cent growth in parcels volumes over the past few years, all driven by online shopping.

“Our profit in the non-regulated parcels business has doubled over the past three years. We have invested $600 million to expand the capacity of our parcel service so we can deliver more efficiently for Australian businesses,” he said.

Follow Hamish Barwick on Twitter: @HamishBarwick

Follow CIO Australia on Twitter and Like us on Facebook… Twitter: @CIO_Australia, Facebook: CIO Australia, or take part in the CIO conversation on LinkedIn: CIO Australia