Postal plan to take off as the 'Easyjet of banking'

Post Office Ltd, the Achilles' heel of Royal Mail Group, could become the "EasyJet of banking" within a few years, according to Allan Leighton.

The chairman of Royal Mail said its subsidiary, which last half-year ran up losses of GBP95m before exceptionals, could one day return to profitability by providing cheap and simple banking services to millions.

"With 3m to 5m card accounts we could break even," Mr Leighton said. "If you then add on banking services, we can make it very profitable and become the EasyJet of banking."

Sitting below a poster of Dyson vacuum cleaners – he is also on Dyson's board – Mr Leighton said he hoped to use the postal network's natural monopoly and its innovative techniques to succeed where many retail banks have failed.

The timing may seem strange. Next April, the government will start paying benefits electronically, breaking the post offices' monopoly. David Mills, chief executive of Post Office Ltd, estimates this would lead to a 40 per cent loss in the network's business, and has criticised ministers for making Post Office card accounts more difficult to obtain than high street bank accounts.

These are also trying times for the group. The postal market will partially open to competition on January 1 and Royal Mail, still losing more than GBP1m a day, is ill-prepared to face continental rivals such as Deutsche Post and TPG. It has complained that Postcomm, the mail regulator, has made things harder by proposing tight price controls for the next three years and failing to set out a clear framework on access prices.

But Mr Leighton – who is believed to have reservations about the government's policy on automatic cash transfers – said these issues would easily be ironed out, and Post Office card accounts could be used as the basis for more profitable financial services. "It will become easier with time to open Post Office accounts," and sub-postmasters would develop "guerrilla tactics" to attract more customers.

The chairman has rarely expressed such clear confidence that the Post Office – still running trading losses of GBP3.6m a week – could ever make a profit. Up to now the renewal plan has focused on making the UK mails business profitable and ensuring the network breaks even within three years.

Mr Leighton conceded that post office banking may be far in the future. But there was no conflict between Royal Mail's role as a public service provider and the pursuit of profitability.

"We're a commercial entity that provides a public service, and that's fine. It's a very strong position to be in." The profitable parts of the group – such as first-class and business post – could help fund the social functions of less profitable post offices, he said. The post office network and the provision of a universal postal service gave the group a natural monopoly over a huge market, creating further opportunities for profit.

"There are plenty of businesses with departments that don't make a profit," Mr Leighton said, adding that this was no reason to spin-off Post Office Ltd, as some have suggested. He said the post office network – with more than 17,000 outlets – was one of the best retail brands in Europe, and separating it from the rest of the business would be like "selling the crown jewels".

Deliveries and the network are interdependent: 70 per cent of products sold in the retail business are Royal Mail products and post offices have delivery offices.

"Financially it's all connected. The renewal plan would fail if the company were split now. We own the whole supply chain, which is a huge advantage. The issue is how to make it efficient."

One simple strategy Mr Leighton has thought up is to cut transport costs. Until now, most first-class mail has been carried by train and most second-class mail in trucks. But drivers have told him their trucks run half-empty. Along with the fact that trucks have become cheaper, faster and more reliable than trains, it made sense for them to carry first-class mail at full capacity and for second-class mail to go by rail – leading to GBP100m in savings.