The red letter day for Royal Mail can't last

Forecasting is hard, especially in a pandemic. Back in June, Royal Mail thought its UK revenues could fall £250m this financial year, largely because of the collapse in letter volumes. Now, thanks to the continuing boom in parcels, it thinks it may show a £100m year-on-year gain in income.

Cue a 25% rebound in the share price, an understandable but also misleading reaction. The crisis at the postal service has not passed. A “material loss” is still on the cards in the UK this year and another constant is the horribly weak state of the letters market. That is an acute problem because letters, unfortunately, are far more valuable to Royal Mail than parcels.

A peace deal with unions in a long-running dispute over automation and working practices is crucial, as management sees things, but chairman Keith Williams, standing in as chief executive as well, had no progress to report on that front. He did, though, throw something new into the regulatory mix: Royal Mail might prefer not to deliver letters on Saturdays.

It was a hint at this stage, rather than a request, but the company’s many references to protecting letters during “the working week” was a signal to regulator Ofcom of what’s coming.

Any change to the universal service obligation (USO), via which Royal Mail must deliver to every address in the land six days a week at a uniform price, would be controversial. The “overarching objective” of privatisation in 2013, remember, was to secure the USO, or so ministers said at the time.

Yet there’s a fair case that life has moved on. At privatisation, letter volumes were expected to fall 4% to 6% a year. The rate had accelerated to 8% even before Covid-19 and this year’s decline is forecast to be 17%. In most businesses, something would have to give.

Compressing letter deliveries into five days is not the worst idea, especially if parcel deliveries were extended to seven days, another idea being kicked around. Many (but obviously not all) customers might happily take that exchange.

Certainly, the argument for giving Royal Mail some regulatory relief is strong. It would be a better outcome, including for staff, than a break-up bid to separate GLS, the successful Amsterdam-based international operation, an idea obsessing the City in recent months. Ofcom and MPs should give the proposal a hearing; no letters on Saturdays would be a wrench with history, but one we could probably live with.

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Willie Walsh bonus clears for takeoff

The airline industry is in “the worst crisis we have ever faced”, said Willie Walsh as he bowed out as chief executive of British Airways parent IAG, but, fortunately for him, there are no such alarms in his pay packet. A compliant 71.6% of shareholders waved him goodbye by ticking the “approve” box on a remuneration report that detailed his £883,000 bonus for 2019, part of a £3.2m pay packet.

A 20%-plus rebellion still obliges a listed company to respond formally, and here’s IAG’s limp effort: “The board will continue to engage with shareholders to fully understand their concerns.”

What is there to understand? It’s not complicated. The objectors thought it outrageous that Marc Bolland, the tame pay committee chair who was also on his last boardroom lap, should give a thumbs-up to executive bonuses in March when the costs of the pandemic were already emerging.

OK, the bonuses related to 2019 but the board readily cancelled shareholders’ dividend for the same period in its next act. It has since moved on to 12,000 job losses and a €2.75bn rights issue. Bonuses ought to have been the first thing to go.

S&P send Tesla tumbling

Volatility is guaranteed with Tesla’s shares but Tuesday morning’s fall of 17% was going some. One could shrug and say it was a bad day for US tech stocks, or that the fivefold increase in Tesla’s value this year left the electric car company exposed.

Yet the special factor was the compilers’ decision to leave Tesla out of the S&P 500 in a rejig of the most broadly-based US index. Do index decisions now matter quite so much? It seems they do. Tesla may be an exaggerated case, but this looks another example of the tail wagging the dog, or what can happen when index-tracking funds come to dominate a market. One day it will be a bigger problem.


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