UK Royal Mail loses 5p on every first class stamp
Royal Mail loses an average of 5p for every First Class stamped letter posted by members of the public and small businesses, the company said.
The average loss for Second Class stamped letters posted in the UK’s 120,000 pillar boxes is even higher – 9p a letter.
The GBP247 million losses incurred on personal letters, greeting cards and the stamped mail posted by small businesses last financial year were covered only by the profits generated by bulk business mail, said Royal Mail’s Chief Executive, Adam Crozier.
"Royal Mail’s stamp prices are among the very lowest in Europe," said Mr Crozier. "But this is only achieved by cross-subsidy by the customers of bulk and franked mail. Competition is rapidly entering the postal market. If – as is likely – competitors take profitable volume from Royal Mail, then our ability to maintain the one-price-goes-anywhere mail service is going to be severely weakened."
The new figures on the losses on the letters posted in the nation’s postboxes come from Royal Mail’s audited regulatory accounts which have been given to the postal regulator, Postcomm.
Royal Mail recently announced that for the first time in four years the Group was trading profitably with a GBP220 million profit on day-to-day operations in 2003/04.
However, the return on the Group’s GBP8.6 billion turnover was just 2.5percent, compared with margins of around 20percent generated by other European postal operators, and the profit on operations masks a number of cross-subsidies within the letters business:
Heavier items of mail subsidise lighter letters, Business mail, which makes up the bulk of the average postbag, subsidises stamped mail such as personal letters, along with birthday and Christmas cards.
Mr Crozier said: "Royal Mail can’t keep sustaining heavy losses on stamped mail as competition intensifies. We are determined to charge a fair price – and that means having prices much more related to the actual cost to Royal Mail of providing the service. That’s the discussion we’re having with Postcomm."
He pointed to a further risk. The regulatory accounts show that Royal Mail made a GBP158 million overall loss on all mail which weighed less than 100g – more than 80percent of all mail.
"Clearly, competitors are most interested in the most profitable parts of the mail market," said Mr Crozier. "Unlike Royal Mail, competitors will select their customers, offering services to some but not to all. As most mail is loss-making, it means that if Royal Mail loses a relatively small amount of profitable bulk and franked mail to competitors, it could result in the overall one-price-goes-anywhere service moving back into loss."
Royal Mail’s overall prices are currently capped under an RPI-1percent formula agreed with the postal regulator, Postcomm, with the next annual adjustment due in April 2005. It means that the basket of Royal Mail’s prices will again fall in real terms next financial year if RPI stays at or near its current level of 3percent.
"But longer-term, as competition intensifies, it’s clear that Royal Mail will need to rebalance its prices," said Mr Crozier.
Just over two years ago, Royal Mail launched its three-year renewal plan to revive a business which was losing more than GBP1 million on its operations every working day.
"We’ve made huge strides since then to modernise Royal Mail. The number one priority is to improve the quality of service to customers and there is a huge effort to complete the massive operational changes we need in the letters business to deliver long-term, consistent, high quality service. While we have worked hard to ensure that disruption is kept to a minimum and changes are implemented quickly, we know we let customers down during the spring when our service levels for next day delivery of First Class mail fell briefly to the low 80percent levels. We have since seen significant improvements.
"But a modern Royal Mail also needs a competitive price structure and a realistic commercial margin to make investments to improve our services, to reward our people fairly and to fund our current pension fund deficit."
