Australia Post has telegraphed the need to downsize its retail network as losses in its letter business continue to stack up amid changing consumer habits.
Despite an improved earnings result for the six months to December 31, the Commonwealth-owned postal delivery service anticipates ongoing full-year losses, threatening the long-term financial sustainability of the business, unless further reforms are implemented.
Group profit before tax was up $33.6 million, a 42 per cent increase on the same period the year prior, in part due to a record peak period with almost 100 million parcels delivered across Australia.
But the letters business recorded a $182.1 million loss for the half, as letter volumes fell 11.9 per cent.
"The continuing structural decline of the letters business is unstoppable, with Australians now receiving on average just two letters per week," it said on Friday.
Australia Post and the federal government have begun implementing changes and efficiency programs to ensure the state-owned enterprise, which is required by legislation to be financially self-sufficient, remains sustainable.
Initiatives such as the Post26 strategy, increasing the Basic Postage Rate by 10c and expanding banking and retail offerings at post office hubs have aimed to increase profitability.
"I am pleased to see green shoots from the Post26 strategy starting to emerge," Australia Post CEO Paul Graham said.
"We have been very disciplined in managing our costs in a high-inflationary environment, we’re focusing on simplifying our operations and making the changes needed to build a sustainable business."
Australia Post achieved $140.8 million in efficiencies in the half, including simplification of the support office, product portfolio and broader network productivity improvements.
However, the shift from over-the-counter to digital transactions continues to damage the profitability of the company's post office network as foot traffic diminishes.
Over-the-counter transactions fell by 4.1 per cent for the half, with Mr Graham flagging a downsizing of Australia Post's retail network will be necessary.
"Despite the green shoots, there are still fundamental structural challenges confronting Australia Post as letters use continues to decline and fewer customers utilise our retail network," he said.
"The new delivery model we are trialling will help address the decline in our letters business, but our outsized retail network will need to be addressed."
Communications Minister Michelle Rowlands in December said Australia Post needed to adapt to the changing digital environment while announcing a cut to the letter delivery requirement to every second day as part of a suite of modernisation reforms.
"We've seen around the world that government-sponsored postal services are failing," she said.
"We will not let that happen to Australia Post and the way that we ensure its sustainability is by making changes."
Australia Post said it expects to see further financial performance improvement once the reforms are implemented.
"However, further reform is required for Australia Post to become a financially sustainable business," it warned.
