Australia Post risks being a burden on taxpayers unless its loss-making letter delivery business is reformed, leading experts warn.

The government-owned postie unveiled a confronting $200 million pre-tax loss for the past financial year on Thursday, with chief executive Paul Graham saying the worst is yet to come unless the federal government pushes ahead with an urgent modernisation of the company.

“Without this [government] support, the FY23 loss will be followed by many more,” he said.

“Inaction could result in a greatly devalued Australian asset.”

Letters a loss

The culprit for Australia Post’s eye-watering loss – only its second since 1989 – is its letters business, which rose more than 50 per cent to $384 million over the past financial year.

It was enough to drag down the performance of the flagship parcels business, which had sales rise to $7.3 billion amid ongoing investments in faster deliveries across major capital cities.

Flavio Romero Macau, an associate professor at Edith Cowan University, said Australia Post is a business with “one foot in the past and one foot in the future” and needs an urgent overhaul.

“The foot in the future is where Australia Post is making money, with huge investments in its parcel business,” he said.

“The foot in the past is dragging the business like a barnacle on a ship because Australia Post is mandated into delivering letters, which is something that’s declining really quickly.”

Dr Macau said that without changes to the frequency of letter deliveries and changes to the way the letter service is priced, Australia Post risks becoming a financial burden on taxpayers.

“They don’t have the ability to change the price of letters as they wish, and regardless of cost they have to deliver at a very high frequency at a very low price,” he said.

‘Finding an equilibrium’

“It’s about finding an equilibrium where they deliver letters, but not every day, and where they have a post office near the community, but not 2.5 kilometres near every community.”

Australia Post’s loss is a worry, experts say. Photo: Australia Post

John Howard, a visiting professor at the University of Technology Sydney, agreed that reform of Australia Post’s letter business is urgently needed, saying that if governments want the postie to continue delivering paper mail across the country then taxpayers will have to foot the bill.

That could ultimately include equity injections in Australia Post if nothing is done, he said.

“Something really seriously needs to be done about changing attitudes and behaviours,” he said.

“The letters business was always going to be loss making.”

Businesses ‘should pay’

Dr Howard said Australia Post should have more latitude to raise letter prices for businesses, which represent the majority of such deliveries these days but are charged the same rates as households.

“If businesses insist on sending out junk mail, which most of it is, then they should pay,” he said.

The Albanese government is running consultations for a review of plans to modernise Australia Post, with the public-owned postie itself lobbying for more flexibility in letter delivery.

Paul Alexander, an associate professor at Curtin University, said Australia Post is “lobbying like crazy” for reforms to the letter business that would reduce delivery frequency and raise prices.

“To run at a loss because it’s a social service is a false economy,” he said.

“You get unprofitable services being supported by profitable ones.”

Dr Alexander said higher prices for businesses delivering letters would make sense and help drive behavioural change among customers, though it’s important that communities that still rely on regular letter deliveries are brought along on the journey to reform Australia Post.