Price increases could hasten An Post’s decline, regulator warns

An Post failed to achieve a business recovery plan based on wage restraint, efficiency, managing the decline in letter post and implementing agreed increases in postal charges, the Communications Regulator (Comreg) has said.

Comreg commissioner Kevin O’Brien told TDs and Senators that An Post’s financial reserves had declined from €350 million in 2008 to some €40 million last year.

Mr O’Brien also warned that proposals by An Post to introduce price increases of up to 35 per cent could gravely hasten the “serious and marked decline in letter post”.

He said An Post’s 20 most important customers – utility companies, banks and government agencies – had already forfeited a “next-day delivery” option and were instead using a three-day delivery plan, in order to achieve a two cent reduction in cost per letter.

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He said it was a mistake to think these customers would put up with a significant price increase.

Detailing the failed five-year business recovery plan which Comreg had agreed with An Post, Mr O’Brien said it had been based on a number of assurances from the company.

Wage increases

The first of these was that there would be no wage increases. However, An Post implemented a Labour Court recommended pay increase which cost the company €8 million a year. Mr O’Brien said every 1 per cent increase in pay now costs the company €4 million a year.

The second assurance was based on an assumption of the level of decline in letter post which was severely underestimated. Mr O’Brien said a 1 per cent decline in letter post now results in a drop in revenue of €4 million a year.

The third assumption was that an efficiency target of 2 per cent a year would be achieved, but this did not happen.

The fourth difficulty was that An Post did not increase prices by the full amount then agreed by the regulator. Mr O’Brien warned the level of increase now sought could result in “significant price resistance to the company’s plans”.

However, recently appointed An Post group chief executive David McRedmond insisted the price rise was necessary to address the sustainability of the company.

Global trends

Mr McRedmond said when he arrived at An Post late last year there was “no strategy” to sustain the company against global trends in the rise in electronic mail and the decline of letter post.

“The scale of the challenge is immense,” he said, telling the Oireachtas members that the increases were “urgently required” as the forecast loss for the company was €40 million this year.

He said consultants had been employed and an action plan would be available “come May” but in the immediate future the company needed to improve cash flow.

Patricia Cronin, assistant secretary general of the Department of Communications, told the committee that while letter volumes were set to decline by 50 percent by 2019 when compared to 2009 levels, there was "no threat to mails delivery or the "universal service" guarantee to reach every address in the State.

She said Minister for Communications Denis Naughten was very conscious “that people value the universal service that is the five day a week mail delivery”.