Illustration: Rocco Fazzari.
The job cuts Australia Post boss Ahmed Fahour confirmed on Tuesday are heavier than they appear to be, and still don’t solve the long-term problem the group faces.
About 900 people will go, and that is only 2.8 per cent of the 32,000 the group directly employs. In the decade ahead of the latest cull Australia Post cut 3049 jobs or 8.7 per cent of its workforce, however, and the latest cuts are 22 per cent of the 4000 managers, administrative staff and support staff who will supply the jobs that go.
Australia Post’s unchanged medium to long-term problem is declining volumes and revenues in its traditional mail service, which has high fixed costs tied to its legal obligation to deliver mail five times a week to more than 11 million addresses.
The latest cuts only underwrite business expansion that Fahour is undertaking as he follows the market changes that have seen letter volumes fall by 1 billion a year or 30 per cent in the past five years. They will save Australia Post about $ 90 million a year, underpinning a recent decision to keep corporate outlets open and deliver parcels Australia-wide on Saturdays.
But losses in the regulated letter-delivery business are mounting.
The letters business earned $ 583 million before interest and tax in the three years to June, 2007, and annual letter volumes peaked at 5.6 billion the following year. Between June 30, 2007, and June 30, 2013, it lost $ 560 million, including a loss of $ 187 million in 2012-13. The regulated part of the letters business lost $ 527 million before interest and tax in the three years to 2012-13, and Fahour says a loss of $ 350 million is expected in the year to June that is about to be ruled off.
Until recently, Australia post was growing unregulated revenue and earnings quickly enough to hide the deterioration of the letter business.
Internet shopping has pushed parcel volumes up by between 8 per cent and 10 per cent a year in the past three years. It is now the source of almost three quarters of the parcels Australia Post handles, and parcels and other unregulated services earned $ 1.66 billion before interest and tax in the three years to June 30, 2013, including a record $ 648 million in 2012-13, the year the group bought Qantas out of the StarTrack parcel delivery service.
High fixed costs are generating increasingly large losses in the letters business as more and more ”snail mail” shifts over to digital delivery, and the latest cuts will not result in Fahour moderating his prediction that letter delivery losses will top $ 1 billion a year in a few years’ time if Canberra does not agree to structural reform.
About 95 per cent of the letters that Australia Post delivers are sent by businesses, and Fahour is clipping operating costs this year by offering companies cheaper deliveries if they shift from five delivery days a week to either three days or two days.
The universal service obligation only applies to the remaining 5 per cent of the ”snail mail” that is delivered (half of it during the Christmas rush) – but that continues to keep fixed costs high: mail still needs to be sorted and delivered daily, and postal officers still need to ride their bikes up, down and across the entire national postal network.
Fahour’s strategic position is similar to the one the Coalition government faced with its first budget.
There’s no crisis, although Fahour might be tempted to follow the government in arguing that one exists to try and create a sense of urgency. Rather, there is a medium-term structural revenue and spending squeeze: we have seen the government’s budget response, and over at Australia Post there also are potentially controversial solutions.
Fahour would like the universal service obligation to be amended to allow household-sourced mail to be sent less frequently than five days a week. That’s akin to attacking motherhood, but he has research that suggests households would wear it in preference to paying a delivery fee. The same research shows that they are more interested in weekend trading and upgraded parcel delivery, areas he is already focusing on.
He also wants to persuade the Australian government to hire Australia Post and its 4429 retail outlets as its main payment delivery agency for Medicare and some Centrelink payments, for example.
Fahour briefed the Commission of Audit on the plan. There was no mention of it in Treasurer Joe Hockey’s budget, but the Coalition hasn’t ruled it out, either, and Labor would probably support it.
Australia Post’s structural issues are too big right now for it to be privatised.
Finance Minister Mathias Cormann said in estimates hearings last month it wasn’t being prepared for sale.
Fahour on Tuesday also announced a rejig that combined the retail network in one large division and StarTrack and other unregulated parcels businesses in another. The parcels business is in shape to be privatised if a business solution for the letters business that is politically palatable emerges.