Royal Mail owner blames widening losses on April pay deal and strikes

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Royal Mail’s losses have deepened in the months since it reached a settlement with disgruntled postal workers, as the UK delivery service struggles to overcome the aftershocks of the dispute over pay and working practices.

International Distribution Services, the owner of the formerly publicly owned business, said on Thursday that Royal Mail’s operating loss increased 46 per cent year on year during the six months to September, to £319mn.

The result dragged IDS, which also owns the profitable international parcel business GLS, to a loss before tax of £194mn, an increase of 53 per cent compared with the same period last year.

As it prepares for the peak Christmas period, Royal Mail’s deepening losses are the latest sign of the ongoing problems troubling the 507-year-old postal service, whose staff recently walked out for 18 days in protest at its attempts to change working practices in the face of competition from more nimble rivals such as Amazon.

Despite agreeing a pay deal with workers in April, Royal Mail has been accused of continuing to deliver a substandard delivery service and is now the subject of a £600mn lawsuit brought by another mail group. 

IDS attributed the deeper loss in part to the agreement in April, which saw Royal Mail sign off a 10 per cent salary increase over three years and a lump-sum payment of £500 per person, in exchange for the union accepting changes to delivery start times and Sunday working. IDS said it had made a £61mn provision to cover the one-off payments.

In a sign of the labour dispute’s enduring impact on Royal Mail’s market position, IDS said it continued to suffer a “drag from customer losses” experienced during the industrial action that peaked in the lead up to last Christmas, when retailers rushed to take their business to rival delivery groups.

The UK Post Office, formerly part of the same group as Royal Mail, announced this month that it would also now allow customers at its delivery offices to opt for rival parcel carriers DPD and Evri, bringing its 360-year exclusive partnership with Royal Mail to a close. 

But IDS chief executive Martin Seidenberg insisted “customers are coming back to Royal Mail”. The former head of GLS took over the group in July, after predecessor Simon Thompson stepped down in the wake of the strikes and a cyber attack that temporarily brought Royal Mail’s international delivery service to a halt.

Royal Mail is “pulling out all the stops to deliver Christmas for our customers” this year, Seidenberg added. The company has hired 16,000 seasonal workers, opened five temporary sorting centres and launched financial incentives for employees if they hit “quality targets”.

But Royal Mail, the only UK delivery group required to deliver mail at the same cost to all Britons, has continued to face accusations of lacklustre performance across the country. Regulator Ofcom this week fined Royal Mail £5.6mn for failing to meet its delivery targets last year, warning that the business was still struggling with “ongoing high absence and vacancies”, as well as “delays in bringing service levels back up”.

Separately, Royal Mail said it believed that a £600mn legal claim announced by mail processor Whistl this month was “without merit”, adding the business would “defend it robustly”. Ofcom fined Royal Mail £50mn in 2018 after finding that it engaged in price discrimination that prevented Whistl from launching a rival delivery service.