Royal Mail has asked the government to let it stop delivering letters on Saturdays, arguing it is financially unsustainable and that there is widespread public apathy over the need for a weekend service.
Royal Mail said it needed to move to a weekday-only letter delivery service as soon as possible – which can only happen if the government allows a change to the company’s universal service obligations – after it reported a £219m loss in the six months to September.
The embattled company, which last month warned it might need to cut as many as 10,000 jobs by next August, enjoyed a £235m profit in the same period last year.
The parent company, International Distributions Services (IDS), which is keen to focus on Royal Mail’s burgeoning and profitable six-day parcel delivery business, said the popularity of letters has plummeted making it an increasingly uneconomical business.
“Ensuring future sustainability depends critically on urgent reform of the universal service,” said Royal Mail. “Government has been approached to seek an early move to five-day letter delivery, while we continue to improve parcel services.”
Letter deliveries, which peaked at 20bn annually around 2004, have fallen to 8bn, with volumes continuing to decline at about 8% annually. In 2020, Ofcom, which regulates the postal service, said a reduction to five-day letter delivery would meet 97% of the needs of households and small and medium-sized businesses.
Ofcom, which has estimated that Royal Mail could save £125m-£225m annually from cutting back letter deliveries, has conducted research that found consumers would be “largely indifferent” to dropping Saturday delivery.
The regulator has said that in order for Royal Mail’s universal service obligations to be considered financially sustainable the company needs to make a 5% to 10% profit margin annually. It has only managed to do so in two years since floating in 2013.
However, the loss of Saturday deliveries could have a catastrophic effect on some sectors such as the embattled magazine publishing industry, with many titles planned to land on a Friday or Saturday.
“Time-sensitive titles will be delayed and face significant losses, while the entire industry will be impacted by a reduction in print capacity and higher costs,” said Sajeeda Merali, chief executive of the Periodical Publishers Association, which represents the £3.7bn UK magazine industry.
“The PPA calls on government to block this move to diminish the universal service obligation, which will threaten the sustainability of print titles.”
The postal service is also in talks with the Communications Workers Union (CWU) to try to avert strikes in the run-up to Christmas.
“Due to management action, strike impact has been contained,” the company said on Thursday. “Talks with CWU continue although we are already moving ahead with required changes. Talks will cease if further industrial action goes ahead.”
Royal Mail reported a 10.5% fall in revenues year on year to £3.6bn, although this was flat compared with pre-Covid levels.
It expects to make a loss of £350m to £450m in its current financial year to the end of March, including the impact of up to 12 days of strikes that have been taken or that the company has been notified about by CWU.
“We would prefer to reach agreement with the CWU, but in any case we are moving ahead with changes to transform our business,” said Simon Thompson, the chief executive of Royal Mail. “We have always been clear we need change to survive. We have started turning the business around and will do whatever it takes.”
The CWU, which represents more than 115,000 postal workers at Royal Mail, has said workers will next strike on 24 and 25 November, the bargain shopping day known as Black Friday, as well as on 30 November and 1 December.
However, talks scheduled to end earlier this week have been extended in the hope of securing a deal.
“The talks, which had been scheduled to conclude on 15 November, are continuing to allow more time for a resolution to be reached,” a Royal Mail spokesperson said. “But time is tight given the notified strikes starting on 24 November.”
Royal Mail’s losses affected the overall performance of IDS, which reported an overall pre-tax loss of £127m. IDS also runs an international parcels delivery arm GLS, which made a £162m profit.