Australia Post will go through with its plan to charge $1 for stamps and increase delivery time after the Federal Government took barely a week to buckle to its demands.

Delivery times for general mail will increase by two days and cost $1, unless customers pay a premium to keep the current delivery time – a two speed service similar to what it charges business.

The priority stamps are expected to cost about $1.50 when they are introduced and could rise to $2 before long.

Cabinet has decided it would rather let the monopoly mail carrier charge more and cut services than cover the expected $6.6bn in losses over the next 10 years.

Post chief executive Ahmed Fahour said last week the government would either have to stump up the cash, let Post introduce the changes, or watch the business fail.

“Either we get a massive injection from the government to keep the business going, or they give us the permission to manage the business and therefore no subsidy is required and the business can continue,” he said.

[Related: More Australia Post news]

The changes are what printers and mailhouses have long insisted would create a big enough discount for direct mail to be an attractive option to advertisers who know it works but are scared off by the cost.

The Mailing House director Lindsay May expects more companies will turn to the commercial print and mail industry to save money on postage costs, but volumes will not be big because most high-volume businesses are already using bulk mail.

He says the main benefit will be if Post is able to cover enough of its costs to put the brake on bulk mail price rises, which went up seven per cent last month and 13 per cent a year ago.

“I hope they will break even and stop gouging business because direct mail is effective and gives a far better return on investment than electronic,” he says.

“Postage is going up faster than all other costs to the point where it now makes up more than all other direct mail costs combined, and it is not sustainable to keep pushing it up.

May says putting bulk mail on a similar two-speed system last year has saved Australia Post money because delivery speed is not a key requirement for most clients, so significant money could be saved from doing the same with general.

However, industry figures say there is no guarantee Post will stop raising bulk mail prices unless ACCC oversight of all price changes is restored.

Lamson Paragon general manager Rodney Frost says: “If the bulk mail stays the same for the next two to three years than that would be fantastic but I do not see that happening, which means costs will increase. This would lead to less mail, less print, less work.”

PIAA chief executive Bill Healey says: “It only works if they don’t use it as an excuse to raise business mail prices. Any increase in stamp costs must be used to reinvigorate business mail.”

Healey says the Coalition of Mail Service Stakeholders, which brings together industry groups, licensed post offices and unions, wants real consultation with Australia Post to discuss how the industry and the carrier can help each other.

Healey is also concerned the two-speed system is a ploy to further reduce ACCC oversight, and that appears to be on point as Australia Post will be allowed to charge what it likes for the priority stamp.

[Related: More direct mail news]

Fahour says the changes mean the carrier will be able to reduce its letters losses and is aiming to get it back to break-even.

“The letters business won't make a profit, and that is not our objective. Our objective is to reduce the losses so that we can support five days a week delivery of mail and secure the future of post offices across the country,” he says.

Australia Post is likely to also cut the number of post boxes, saying it will keep at least 10,000. It currently has 15,805 post boxes and will keep 4400 post offices.

In justifying the government’s acceptance of the proposal, Communications Minister Malcolm Turnbull says the Post’s profitable parcel business will come under pressure from overseas competition with Japan Post buying Toll and can’t prop up mail anymore.

“Australia Post cannot be expected to compete for business with multinational logistics companies with one hand tied behind its back, as it loses hundreds of millions of dollars in its letters business,” he wrote in a blog post.

Post’s half year results revealed a $151m loss on its letters business for the past six months – 57 per cent worse than the same period last year. Australia Post lost $328m on letters last year and that is expected to blow out to $350m for FY15.

Letters was expected to lose $12.1bn over the next decade by itself.

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