Australia Post loss another death-knell for essential services

Sep 12, 2023
Australia Post Delivery Truck.

Australia Post’s $200.3 million loss for 2022-23 is only the second in its corporate history. It also confirms that, with Christine Holgate gone, Australia Post is once again being set up to fail to justify removing its community service obligation and possible privatisation.

Australians need to pay attention to issues like bank branch closures and the plight of Australia Post, because we are witnessing the corporate take-down of essential services. The corporate managers of these services are, by definition, temporary, usually in charge for only five or ten years, but the decisions they are making now to maximise short-term profitability and their bonuses are doing permanent damage to the economic and social fabric of Australia. Enthralled with all things digital and regardless of real-world consequences, they are dismantling essential physical and face-to-face services that Australians need, and will always need for the foreseeable future.

The Australia Post saga

Australia Post is a stark example of this take-down, underway right now. Its latest annual result, a $200.3 million loss, is only its second loss since its corporatisation in 1989. Its first loss was $222 million in 2015 under then-CEO Ahmed Fahour. Both losses are similar, including in the way both the 2015 and current management seized on the loss to justify demanding changes to Australia Post’s delivery of essential services, called its community service obligation (CSO).

In the 1 September 2023 Australian Financial Review, longtime Australia Post reporter Patrick Durkin noted about the 2015 loss: “While the business recorded a $222 million loss under former CEO Ahmed Fahour in 2015, that loss was stacked with $190 million in provisions for redundancies and other one-off restructuring costs.” (Emphasis added.) Fahour blamed the “stacked” loss on people not sending as many letters, but he used it as justification for measures that further undermined the CSO for letter delivery, including: a 40 per cent jump in the stamp price; a policy to slow delivery of letters by two days; the reduction of the number of PO boxes nationwide to the bare minimum mandated by the CSO of 10,000; and the establishment of a working group to push “regulatory reform of the letters business”, i.e. to change or scrap the CSO.

Back in 2015 journalist Graeme Philipson observed in Australian Government News on 28 September: “Australia Post would have got out of this loss-making business [letters delivery] years ago if it weren’t for its Community Service Obligation (CSO), a statutory requirement to deliver mail and keep post offices open.” The argument is that digital communications have displaced letters, so let’s get rid of the letters obligation—the reason for Australia Post’s very existence—altogether.

History repeats

There’s strong grounds to suspect the former Woolworths executive-now Australia Post CEO Paul Graham, and the former McDonalds and bank executives who comprise Australia’s Post’s current instalment of highly-remunerated management, are using the same ploy as Fahour to again push the agenda to scrap Australia Post’s essential services. In April, four months before they announced the loss, the Australia Post management made a 20-page submission to the Albanese government’s Australia Post modernisation review. Their submission called for changes to the CSO, including: flexibility in raising the price of stamps (BPR-Basic Postage Rate); a reduction in letters delivery frequency to two days per week; and a reduction in the number of post office numbers—which they are already in the process of reducing to the bare minimum by closing dozens of large corporate post shops in the suburbs of the big cities.

When they announced the $200.3 million loss on 31 August, management blamed the loss on the letters business and number of post offices, and repeated the call in their submission for a reduction in letters delivery frequency and number of post offices.

Yet something doesn’t make sense about Australia Post’s latest loss. Yes, the letters business is loss-making, but, as noted, that has been true for years—the whole business which funds letters delivery is usually profitable. When we compare the first half results in 2022-23 with the second half results, we see something curious:

In the first half, letters lost $189.7 million, but Australia Post made a $23.6 million half year profit.

In the second half, letters lost $194.4 million, just $4.7 million more, so essentially losses held steady; however, Australia Post made a $223.9 million send half loss, for an annualised loss of $200.3 million.

From these figures it is clear the letters business did not cause Australia’s Post’s loss this year, yet that’s what Australia Post wants the public to believe—that a 4 per cent annual decline in letters revenue, and a 7.8 per cent annual decline in letters volume, caused a 50.2 per cent increase in losses on its letters business.

Alternative explanation

So what else might explain the loss? There is an alternative explanation, and the insight comes from the person who had to clean up Australia Post after its first loss, Christine Holgate, Ahmed Fahour’s replacement as CEO, who is now the CEO of Australia Post’s competitor in parcels delivery, Team Global Express. Holgate’s approach to managing Australia Post was radically different to Fahour’s and Paul Graham’s. She rejected the pressure to downsize services and the post office network, and insisted on growing the overall business to fund the CSO instead. She made enemies among the banks and pro-privatisation politicians of both major parties when she successfully restored Australia Post to profitability by expanding financial services, and she made more enemies in her final year when she opposed a 2020 Boston Consulting Group report which pushed downsizing and partial privatisation targeting the profitable parcels delivery business.

Christine Holgate hasn’t commented on the Australia Post loss, but she did pre-empt the loss in an impressive submission Team Global Express made to the Australia Post modernisation review back in April. By contrast to Australia Post’s 20-page submission, the former CEO’s submission was 120 pages of financial and logistical analysis identifying flaws in the approach to letters and recommending ways to grow Australia Post’s overall revenue.

The submission observed that while Australia Post’s sustainability is under threat: “However, the financial results of Australia Post suggests that their prime issue is not the cost of supporting their community service obligations or delivering letters. Letter revenues fell less than 1 per cent between FY2021/22, the reported letter losses were just $14m greater than two years earlier and the cost of providing their Community Service Obligation was only 4 per cent of their revenues.” Explosively, the submission expressed suspicion that the letter losses are being exaggerated, making the point that “a significant proportion of the parcel delivery costs are subsidised by the letter infrastructure” which “if proportioned commercially, would indicate the letter infrastructure is not loss-making”. (Emphasis added.)

In its recommendations, Holgate’s submission highlighted that the top five postal services around the world, as ranked by the United Postal Union, have two things in common:

  1. They “offer a broader range of Financial/Banking services than Australia Post does. They use the profits from these services to help subsidise the costs of their letter infrastructure, particularly Community Post Offices”;
  2. They “enable other Domestic Parcel Providers to utilise their Letter Last Mile Infrastructure. By doing so they protect their community service obligations and delivery standards rather than reduce them, they support the viability of their Community Post Offices … provide important extra income to subsidise the costs further of their letter infrastructure…”

The latter recommendation was in support of the offer Team Global Express has made to Australia Post to pay for access to its Last Mile Infrastructure, i.e. post offices, which Australia Post has rejected because Team Global Express is its competitor in parcels delivery.

Holgate’s approach

Christine Holgate’s insights into Australia Post deserve to be taken seriously, and not dismissed as the gripes of a competitor, because of what she achieved, and proved, during her 2017-2020 tenure as CEO. Her signature achievement was the 2018 deal by which each of the Big Four banks except ANZ agreed to pay $22 million per year as a Community Representation Fee (CRF) for Australia Post’s Bank@Post service to serve their customers. Combined with smaller fees from around 70 smaller financial institutions, the deal grew Australia Post’s revenue by more than $200 million over three years. The deal saved the Bank@Post service, which the board had wanted to scrap because it had been costing Australia Post $50 million per year—mostly coming out of the pockets of the 2,850 small business licensed post offices (LPOs) who were going bankrupt.

The story is a key insight into Holgate’s management approach: she had strenuously opposed scrapping Bank@Post, because she didn’t see it as simply an expense, as everyone around her did, but as an essential service, especially as around 1,100 communities across Australia have no banks and can only do face-to-face banking at the post office. The deal she achieved in October 2018 saved those 1,100 regional communities and made LPOs financially viable for the first time in years.

LPOs are the most invested of all Australia Post’s stakeholders, with collectively $3 billion of capital tied up in their small businesses that are the front line of the delivery of essential services; they also have the longest institutional memory of the fluctuating fortunes of the business. When Christine Holgate was ambushed in Parliament over the banking deal two years later—because in 2018 she’d spent $20,000 on relatively cheap Cartier watches as recognition for the efforts of the four executives who’d worked so hard to bring the reluctant banks to the table—everyone who knew her in the major parties and the political hacks on the Australia Post board threw her under the bus, but the LPO Group, which represents the interests of LPOs, were her sole defenders, declaring her “the best CEO Australia Post has ever had”. The LPO Group’s staunch support for Holgate led to a 2021 Senate inquiry, and while the inquiry didn’t achieve their objective to have her returned as CEO, it cleared her name and confirmed she had made powerful political enemies by opposing the privatisation agenda and taking on the banks (including by floating the idea of a public postal bank to compete with the major banks).

Having experienced the success of Holgate’s approach, which proved Australia Post can grow as a business to fund its essential services, today the LPO Group expresses despair that the organisation is again pushing to cut services. The LPO Group is fighting to keep Holgate’s approach of growing revenue to fund services, including by endorsing her proposal for Australia Post to allow access to its Last Mile Infrastructure, and advocating strongly for a public “postal bank to sustain the network and fund infrastructure”.

‘You don’t know what you’ve got till it’s gone’

Australia’s Digital Inclusion Index is at 73.2 per cent, meaning that 26.8 per cent, or around 6 million people, actually rely on letters, post offices, physical Centrelink offices, and face-to-face banking. But so does everybody at some time or another: in the many places around Australia, even in major cities, where phone and internet coverage isn’t reliable; when you need to visit a bank for a reason other than deposits or withdrawals (visits that the banks admit they don’t measure when they count how many people are visiting branches); when small businesses need to deposit and withdraw cash for their daily commerce; for secure, timely postal voting (the Electoral Council of Australia and NZ says reduced letters frequency “threatens” postal voters enfranchisement in democracy); when you need to conduct personal or commercial business securely; and for any number of other reasons, which people won’t know until they need them.

It’s time to stop the corporate take-down and implement solutions that will sustain essential services. A public post office bank that will guarantee postal and banking services for all communities is one solution, which the current Senate inquiry into bank closures, which reports in December, is considering.

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