Oireachtas Joint and Select Committees
Wednesday, 1 May 2013
Joint Oireachtas Committee on Transport and Communications
An Post: Discussion Chairman Designate
The purpose of this morning's meeting is to meet with the chairman designate of An Post, Christoph Mueller, to discuss the approach he will take in his proposed new role and his views on the challenges facing An Post.
Members are aware of the Government's decision in May 2011 to put in place new arrangements for the appointment of persons to State boards and bodies. The committee welcomes the opportunity to meet with chairpersons designate in public session to hear their views and we trust this provides greater transparency to the process of appointments to State boards and bodies. On behalf of the committee I welcome Mr. Mueller here this morning. An Post and post offices in particular are matters of great interest to the members of this committee and we are most anxious to ensure their survival. Mr. Mueller may be aware that this committee recently completed a report entitled Promoting a Sustainable Future for the Post Office Network.
I draw Mr. Mueller's attention to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if he is directed by the committee to cease giving evidence in regard to a particular matter and continues to do so, he is entitled thereafter to only a qualified privilege in respect of his evidence. He is directed that only evidence connected with the subject matter of these proceedings is to be given and is asked to respect the parliamentary practice that, where possible, he should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. I also wish to advise Mr. Mueller that any submission or opening statement he has submitted to the committee will be published on the committee's website after this meeting. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.
I call Mr. Mueller to make his opening statement after which we will take questions from the floor.
Mr. Christoph Mueller:
I thank the Chairman for giving me the opportunity to address the committee, to introduce myself properly and to enter into an open exchange of views. I have studied the committee's recent report on the post office network and feel that in certain areas the committee might be more educated than I am when it comes to the subject. I will introduce myself briefly, share some views and then we can start the question and answer session.
My name is Christoph Mueller. I am 51 years old and arrived in Ireland approximately three and a half years ago to take up the role of chief executive of Aer Lingus. I am married to Florence, a former long-haul pilot. We have three children and we live in Howth. I joined Aer Lingus in September 2009 when the task at hand was obvious. Aer Lingus had accumulated losses of almost €100 million in 2009 as a consequence of the financial crisis and the collapse of the financial markets. If I might say so, we have fixed the situation since then. Aer Lingus has just published its annual accounts for 2012 which was our third consecutive profitable year. We are now the fourth most profitable airline in Europe. That was accompanied by a lot of structural and strategic changes and of course I can provide further evidence of this in a different capacity.
I would like to shed some light on my education which I believe is relevant because I have engaged throughout my life in certain areas which might be of interest to the committee. After a normal high school career I joined the German army where, instead of doing my mandatory 15 months' service, I opted to do two years and became an officer of the logistic forces. Ever since I have been involved in questions of logistics of different types, postal, freight forwarding, tourism and, as I have mentioned, aviation. After my military service I accomplished a three year apprenticeship programme which is very popular in Germany and is comparable to becoming a chartered accountant here in Ireland. Parallel to that practical education, I completed my masters in business administration at the University of Cologne. During my studies I concentrated on production planning and just-in-time concepts which surprisingly come from the postal network so at an early stage in my academic career I focused on that.
After my academic career I made a couple of career moves. After completing my masters degree I joined Lufthansa as an internal auditor. I left Lufthansa after a couple of years to become financial controller of Airbus Industry. I went to eastern Germany after reunification for my first big restructuring project, in a maintenance and repair company of 3,500 employees. I rejoined Lufthansa in 1994 for five years and was first executive vice president for financial control and later became the head of corporate planning, also as an executive vice president. I left the company to re-structure Sabena, the Belgian State-owned airline at the time. Due to the demise of Swissair in the immediate aftermath of the terrorist attacks in the United States on 11 September 2001, Sabena also went into bankruptcy. Swissair was the second largest shareholder in the company, with 49%. The Belgian Government then asked me to privatise the remaining subsidiaries of Sabena which comprised half of the group. That took me almost a year.
I then joined DHL. Before it was taken over by Deutsche Post it was an independent enterprise with a turnover of approximately €26 billion in 2003. I became its chief financial officer. The administration of DHL in terms of its global operation was headquartered in Brussels. I spent very few days of the year in Brussels as it was a job with a global distribution network. I travelled and during that time I spent a year in the United States in order to turn around the US business. It was taken over by Deutsche Post and I joined the framework in terms of the merger and its executive committee in Bonn and got a lot of insight into not only the express business, which is from where I was coming, but also postal services and financial services. Postbank was taken over by Deutsche Bank in the meantime and it was the most profitable arm of Deutsche Post after privatisation. I spent another two years on the executive committee in Bonn in a post-merger integration phrase.
I then joined TUI, a DAX 30 company, which is a German conglomerate whose main interests are in shipping and tourism. At the time it owned five airlines in Europe, for which I took responsibility. We then merged TUI tourism activities with First Choice, the members might recall the name from the UK tourism market. TUI Travel today is the largest tourism provider in the world with a turnover of approximately €25 billion. That was my last career station before I joined Aer Lingus.
Apart from my obligation as chief executive officer of Aer Lingus, I am the chairman of the advisory board of Eurocontrol in Brussels, which, as some members might know, is the central air traffic control agency controlling the upper air space in Europe and it will most probably become the nucleus of a joint European sky initiative. I was invited to join Tourism Ireland one and a half years ago and I sit on its board. That gives members an idea of the background from where I coming.
I feel very honoured having been approached to take up the chairmanship of An Post. It is a huge responsibility but it is also an important obligation. I have followed the development of the postal sector since the European Commission issued a Green Paper in 1992. That was the starting point when the then member states of the European Union, which number slightly fewer than today, came to the conclusion that the postal sector in Europe was still too regulated and that competition was necessary. The White Paper in 1992 basically led to the big postal reform in 1997. It is important to recognise that in 1997 the framework for the sector was set and we are still operating within it. The postal reform recommendations stated clearly that we have to optimise the access, the affordability of the product, prices should be free floating, consumer satisfaction and quality of service are essential, and competition needs to be introduced. That is still the challenge at hand today to balance what are sometimes conflicting targets such as access, affordability, consumer satisfaction and prices and that all needs to be achieved in a competitive environment.
Ireland has not been in the front row of liberalisation and privatisation. Different clusters of countries in Europe took different approaches to fulfil their targets. Total liberalisation took place, as the members know, in the Netherlands, Sweden, Finland, the UK and in Germany. There was a segmented approach to postal liberalisation in Spain, Italy and the Czech Republic, and Ireland still kept the weight threshold it held in order to mitigate in this respect in terms of the postal service we have had from the late 1990s up to today.
A consequence of the postal reform can be recognised all over Europe. Next day delivery is now standard. I remind the committee that in 2009 when the last benchmark took place on a European level, the quality standard of D+1, the overnight service, was not sufficient in Ireland. Huge progress has been made in the past few years. If one studied the 2012 annual report, one would note that if that measurement were to take place today, Ireland would be ranked among the first in that we have an overnight service. The quality of service has improved tremendously while productivity has also increased.
Prices remain affordable. A tendency that has emerged is that the number of post offices have been reduced - which will be of interest to the committee - sometimes in favour of franchise takers and of postmasters. Many post offices throughout Europe have been closed. That is a matter of concern for this committee and for broader society in that in many European counties I witness similar discussions about this.
Structural changes are still not complete. That is certainly attributable to a very fast moving technology cycle, not only to new sorting technology but to labelling and not only barcode but RFID labelling, and all these types of technology will enable a more efficient service into the future. Apart from the postal service, members will have recognised that the express market is growing very fast. It does not stick only to its traditional passer business but increasingly it tries to take in what has been traditionally the home turf of the post offices.
That is a short overview of where I am coming from. It may be more useful to immediately enter into a question and answer session and I can answer those questions which are most important for the members.
No doubt there will be many questions related to Mr. Mueller's experience in the business world. In that respect, he brings a lot to An Post. Is he aware of the report on this area carried out by the committee? We were aware over the years of the difficulties facing many rural and small post offices in terms of their viability. We carried out a report and it involved a great deal of effort and commitment on the part of the members and we came up with a set of proposals. Is Mr. Mueller aware of that report or has he seen it?
Mr. Christoph Mueller:
I will deal later with the role of the post office in society, which certainly has been pointed out as being a hub in rural communities. When the entire discussion started in Europe more than a decade ago people anticipated that we would reach a point where a decision would need to be made between the network density, the network depth of postal offices all over Europe and the affordability of the product. I remind the committee that I am the chairman designate of An Post; I have not got my legs entirely under the desk. I have noted the position from the publicly available annual reports.
What An Post has certainly achieved over the past couple of years, despite a serious economic crisis, is keeping the balance between affordability, an appropriate network density and depth, cost position and revenue position. That is a very fine balance. An Post is a 100% State-owned company with a very special mission. Ultimately, its board is responsible to the taxpayer and that is laid out in its code of conduct.
In that role, we have to try to become a fair broker between the interests of the community and society in terms of the importance of post offices, in particular in rural regions, and the necessity to remain competitive. That becomes very clear.
There are different ways to go. It is not only about cost-cutting and closure. The main question is whether an additional product range can be introduced to keep those post offices which, under ceteris pariabus conditions, would face closure. That is basically what other European countries have demonstrated is possible if certain conditions are fulfilled. Most probably that will fuel the discussion in the years to come - that structural change will not end.
Post offices are the oldest companies in European countries. The first postal service was introduced in 1490 between Innsbruck and Brussels. Some post offices are more than 500 years old and they have demonstrated over these five centuries that they are not only capable of adopting modern technology but of surviving structural changes of immense impact. The introduction of ships, railways and aeroplanes has not made post offices redundant. It is with the same mindset that we must enter the next five to ten years to see whether we can add valuable services to An Post's portfolio in order to maintain the network density.
I welcome Mr. Mueller and wish him well as incoming chairman of An Post. As the Chairman said, An Post and its services are an integral part of urban and rural communities. I appreciate the points Mr. Mueller made in regard to Europe and services.
This debate on the future of the post office network and the provision of as many post offices as possible throughout the country has been going on for 20 years. We have lost a large number of post offices and the sense of community and identity in urban and rural communities has dwindled as a result. The retail network of An Post is very dear to our hearts in urban and rural communities. In his new role, will Mr. Mueller ensure they are protected and enhanced?
The debate has always been about what new services we can bring to post offices and whether they are State offices in communities and whether we should enhance them to reflect that. It is vital that An Post looks at what services can be attached to the network to enhance its business and the urban and rural communities it serves. A mainstay of the post office network over the past number of years has been the payment of social welfare benefits. Over time, the Department of Social Protection has been gearing people towards having their payments paid directly into their bank accounts. Some payments, however, were reserved completely for the post offices to avoid any confusion or fraud but I understand the Department has met to discuss the cost in the past two or three weeks. It is vital An Post keeps that service. If these social welfare payments are not paid by post offices, it will be very hard to sustain them in urban and rural communities. That issue needs to be looked at.
The report of this committee considered all the stakeholders. We should protect the social welfare payments paid by post offices at all costs. How does Mr. Mueller envisage enhancing An Post's retail outlets throughout the country to ensure they are viable going forward? It is very easy to let the service die out, to pull it back or to close a post office because it is not viable. However, the onus is on An Post to ensure it looks for new business and new ideas and that it enhances the network going forward.
I welcome Mr. Mueller and wish him well in his role. There is no doubt from the curriculum vitae he presented that he is amply qualified for the role. He has come in at a good time because last week when I was driving home from here, I heard on the news that An Post had an operating loss of €17 million last year but when one factors in all the losses, it is upwards of €40 million. In the middle of that media report, there was a discussion on the salaries being paid to the top executives of An Post, in particular at the level of chief executive officer. A company which reported a €40 million loss has a CEO on a salary of €400,000, which is twice that of the Taoiseach and twice the €213,000 salary of the Governor of the Central Bank, who is charged with ensuring fiscal rectitude in Ireland.
There might be a temptation now to reduce services or to cut employee numbers or retail outlets to try to balance the books but how does that sit with the incoming chairman? A cost restructuring programme needs to take place in the company but the CEO earns twice the Taoiseach's salary and in a country of 4 million people. I have a huge difficulty with that. The Netherlands has taken a very clear line in terms of highly paid public and civil servants and salaries are set at a maximum percentage of the Prime Minister's salary. What does Mr. Mueller think of that? In his role as chairman, will he encourage people at the top to look at themselves before they look at others with a view cost saving in the company?
Mr. Christoph Mueller:
In regard to the retail network, we should not confuse last mile delivery with the physical post office. Traditionally, the post master left the post office in the morning but more and more the post comes from distribution centres. The committee's report shows more people receive social welfare payments in smaller post offices. Another interesting fact is that the savings rate is also highest among that same constituency, so that needs a closer look.
I also gather from the report that services, particularly BillPay, are an important thrust.
I will now factor in one aspect that we have not introduced sufficiently to the discussion, the correlation that can be measured all over the world between mail and Internet penetration. The level of Internet penetration in rural areas is very low and one might ask the question whether that is good or bad news. It is good news when it comes to online retail services because to a certain degree parcel post can compensate for declining letter volumes, as in the oft quoted examples of Finland and Sweden. The bad news is that we have seen increased penetration of high speed Internet access. One also sees a correlation in the fact that more and more financial and payment services will be entertained online. Therefore, we must closely examine to what extext technology, particularly better broadband Internet access, will impact on the product mix in outlets. I note the committee's seven recommendations in that respect. The right key words were mentioned: retail, financial services and the potential co-operation in a commercial sense with banks and credit unions.
On average, there are several social centres in small towns all over Europe: the post office, a small hardware store, a pub and so on. There are problems in all directions. In the little town in which I lived the post office had a counter in the supermarket and the merger was successful. If one wants to increase the level of online retail of groceries and other goods, it will be at the expense of the local supermarket. An overall balance needs to be found and the report mentions all of the opportunities and difficulties that I can see.
With regard to salaries, the committee will understand that, as chairman designate, I cannot specifically respond to a query about the current CEO's salary. Of course, members must take into account that the salary must be sufficient to attract professional management to a company of the size and importance of An Post. To attract professional management, one must provide a salary that is market based. I promise the committee that I will, in my role as chairman, examine remuneration and carry out an audit of all relevant committees and review what I discover.
Everyone present wishes Mr. Mueller the best in his role as chairman of An Post. There is no need for us to question his academic or previous business experience, as it is very clear that he is eminently well qualified to assume the chairmanship. Will he tell us a little more about his experience at Deutsche Post AG? Will he outline the similarities and differences between its structure and business model and those of An Post? He became involved in the company after privatisation. Did he become involved during the privatisation process and, if so, what impact did the privatisation or rationalisation process have on staff both during the process and afterwards? Is he still involved with Deutsche Post AG?
Mr. Mueller has a very extensive curriculum vitae. Will he have time to devote the necessary time to An Post? I also completely agree with Deputy O'Donovan that the high salaries of some in State and semi-State bodies must be seriously addressed. Does Mr. Mueller see particular difficulties and has he formed an opinion on how best to approach the difficulties in delivering on the public service obligation, particularly in rural, sparsely populated areas?
My final question is on An Post's deficit, which is mostly a pension deficit. Can the matter be addressed by individual companies? Is Government action required to support them to address their pension deficit? Are policy and legislative changes required in that regard?
I thank Mr. Mueller for his presentation. As he has successfully turned around the fortunes of Aer Lingus, I have no doubt that he will leave his mark on An Post. I would like to know, in line with what some of the other speakers said, what his philosophy for An Post is because he will face many challenges and opportunities. What is his philosophy for the post office network of 1,100 post offices? Will he lead the charge to make the network viable, particularly given what is happening in the overall context of banking services being reduced?
An Post is a very strong brand throughout Ireland, particularly in rural areas where banks are closing branches. Some bank branches remain open, but they only provide certain services a couple of days each week. What medicine will be applied to tackle the €40 million deficit? Will Mr. Mueller lead the charge to secure extra services for post offices to make them viable, or will he be ruthless and close down some of them? Closure seems to be the kernel of the approach adopted.
There has been talk about facing the challenge presented by a €17 million deficit. It is clearly pointed out in the report that the level of parcel post is increasing. As such, what approach will Mr. Mueller adopt? I note that the chief executive at An Post, Mr. Donal Connell, said last week, when figures were being given for the report, that meeting the universal service obligation had cost over €60 million last year. It is clear that that is unsustainable. I would like to hear Mr. Mueller's view on this.
Mr. Christoph Mueller:
I currently have no relationship whatsoever with Deutsche Post and it is almost seven years since I left the company. However, my experience of privatisation is not limited to it.
For the information of members, I am not entirely sure, I believe the German Government just sold its last shares in Deutsche Post. Yesterday I read with some surprise the plan of the British Government to consider the privatisation of Royal Mail. That was first rumoured almost 15 years ago, but is not so easy to do. Very few post office services in the world have been privatised; only the Belgian, Dutch, German and Austrian postal services have been privatised. Even the United States has a state-owned postal service.
It is in the national interest to have a state-owned postal service and to retain that infrastructure. An Post has demonstrated that it is a very important service, particularly in a small country, where by definition there is not enough market share for two providers. One can see this applies to other public utilities. A country with a population of 4.5 million people cannot support two gas companies and so on.
Privatisation is not a default solution for postal services. It can be considered if the conditions are right but it will be very difficult to float a postal company in one go. What I see, if one wants to take the privatisation route, is that one must do it in tranches and release it slowly. The experience in Germany, and I have experience with Deutsche Airbus, with Lufthansa and a number of other companies that have been privatised in different steps during my career, was generally very positive, with no negative implications for employment, neither on the conditions nor the headcount. It was of course very healthy to increase competition. It is a little like a fitness programme.
The second question was on remuneration. I believe I answered that question. The difficulties in fulfilling the public service obligation is basically at the root of it. We must take into account of course that technology has greatly helped us to improve the service. I believe modern route planning and rostering opportunities might keep the delivery service at the same level but at a lower cost. An Post has demonstrated in the past three years that this is possible. Will a silver bullet solve the problem, that is, will one measure or one decision resolve it? I do not believe so. We must work on the cost side but with all respect the price of a standard 20 gram letter in Ireland is affordable. It is not in the top third in Europe. Letters are very affordable. It is legitimate, it happened in other European countries, to also think about the prices. Its service is extraordinary good.
I was asked about the pension deficit and whether a government should help out to close the deficit. The solution which obviously is on hand for An Post is very good. One must ask whether one means the Government, in its role as the sole shareholder of An Post, or the Government in general? In general one should reject the idea that the government should get involved in pension funds. I can witness that from another angle of attack. I believe the solution which is envisaged for An Post is very good and does not need further assistance by the State.
Again the issue of the philosophy of the situation was raised. We have to engage in a very sober assessment of the facts. In the case of An Post we must unfortunately work through some legacy. A proper analysis of the data between the years 2000 and 2007 would have revealed that the postal demand in Ireland and the correlation to GDP is the lowest in the European Union. The spread between letter growth and GDP is the widest. We have recognised a small amount of growth in letter and direct mail between 2002 and 2006, of 1.5% to 2%, while the GDP was the highest in Europe. Already then we could have seen that the decline in letter volume is inevitable and particularly severe in Ireland, which most people benchmark permanently with Sweden or Finland. We must take into account that the items per capitain Ireland are the lowest in Western Europe. We have 150 letters per person per year, taking everything into account. That is half of the top rate. That is the reason we must balance the distribution network. It is a special situation.
We cannot easily jump to the conclusion that what works in Sweden and Finland will work in Ireland. The development of the profit margin of An Post during the Celtic tiger years was the lowest in Europe. I believe that apart from the fact that we have structural issues that we must make good, An Post raised a very ambitious restructuring programme three years ago, that is on autopilot if one sees the efficiency improvements that have been achieved with the development of FTEs. I believe it needs more of the same. Let me respond to the question of whether it is enough when I have studied the numbers a little bit more carefully.
I declare an interest in that I am a postmaster of a sub-office with An Post, so I am a contractor to the company, albeit at a low level. I welcome the appointment of Mr. Mueller as chairman designate of An Post. He will bring a depth of experience and expertise based on the global brand companies and Irish companies, such as Aer Lingus, Fáilte Ireland and An Post with which he has been associated. Irish people have a great affinity with those companies.
An Post is facing difficult challenges. Historically, revenues would have remained strong but the margins were always very tight and it was always very difficult to derive a profit from increased revenues. There is a challenging market in mail, with e-substitutes and e-mail posing a major difficult for An Post. I do not see any reversal of that trend. The board of An Post will have to address it.
The pension deficit is a significant issue but the company is making progress on it. Based on his business knowledge and experience in global companies and in Aer Lingus and Fáilte Ireland, would Mr. Mueller be prepared to take a hands-on approach to the way in which An Post seeks new opportunities, addresses mail volumes, deals with unions, addresses costs and increases revenues while dealing with the Minister who, on behalf of the State, has a huge say in how the company operates?
Some of An Post's best revenues have come from its subsidiary companies. Would Mr. Mueller be prepared to expand An Post's business ventures to consider and address challenges in e-commerce and electronic communications generally? I note that many of the companies in which Mr. Mueller has worked have been extremely successful and gone from strength to strength. He has played a very strong role in that success. Sabena is the one that sticks out. Can Mr. Mueller provide the committee with a brief description of what happened in Sabena, which I recognise was linked to Swissair, which had government issues? What was Mr. Mueller's involvement in what happened and what lessons can be learned?
Mr. Mueller and his staff are very welcome. These are challenging times for the postal service, not only in this country but in other jurisdictions. I have been of the view for some time that while technology has been good for society, it has not been good to An Post or the Royal Mail. The advent of e-mail has completely transformed the way we communicate with each other.
A fact which is not widely known is that Ireland has the third lowest postage stamp rate in all of Europe. It is not popular to say so, but who cares? ComReg agreed to increase the price of a stamp from 55 cent to 60 cent, which still leaves us third lowest. Historically, An Post receives great publicity about its losses but the universal service obligation makes it very difficult not only to become viable but to break even. It is a very expensive contribution which is provided for from An Post's own revenues rather than from the Exchequer. I would be interested to hear what Mr. Mueller has to say about it.
ComReg has either threatened to sue An Post or already taken it to court.
I am honoured to be the first to do so. I have not spoken to the Minister about it. There is an obsession with measuring the postal system and next-day delivery whereby one could post a letter in Kildare Street and receive it at home in Tallaght the following morning, which happens. However, one does not expect to receive one's letter the following morning if one lives in Bundoran or Westport. We must be realistic about it. There was a move to establish an independent regulator or system to measure the performance of the postal system. Has that been agreed or is progress being made on it? I agree that there should be an independent body to monitor the postal service.
I wish Mr. Mueller well in his future role with An Post. I recognise with my colleagues the importance of the postal network. It includes 1,100 post offices and plays a very significant role in the State. The interactions postal workers have in communities, particularly in rural Ireland, is crucial. For many people, the postal delivery might be the only visit they have day-to-day. There is a social element to it which needs to be recognised.
Is there a business unit within An Post that Mr. Mueller is particularly unhappy with and would seek to sell or have acquire new business? The postal market is shrinking, which is a real issue. Has there been any attempt to stop that process and to encourage members of the public to write a letter on a weekly or monthly basis to support the network and ensure it survives nationally? I take the point that salaries are an issue, which has historically been the case. I am sure it will be dealt with and that An Post will become a great deal more competitive. The pricing model and the fact that Ireland has one of the lowest stamp-pricing structures were mentioned. I assume it is an area Mr. Mueller will examine. There must be something given back to the public, however, to encourage it to buy into the postal market. An Post is a strong brand and everyone wants to ensure that the postal network survives.
Many viable rural post offices have closed over the last number of years due to the fact that people have retired. The traditional post office is often family run and, unfortunately, people coming to retirement age want to get out of the business. Some villages may not have someone who comes forward with a suitable premises. Many post offices have doubled up as small businesses and grocery shops, which were very functional. There is a significant opportunity for An Post to open post-office contracts to local community groups which have experience in setting up small businesses, subject to them providing suitable premises. Post offices are central to communities and are pivotal to local social life.
I am sure alternative opportunities have had an impact. What has been the extent of the impact of modern technology, including e-mail and Facebook?
Small businesses have been affected by the downturn in the economy. Have such developments had a domino effect on post offices? Is less business coming the way of some of these firms? To what extent are these things having an impact on post offices?
The national lottery licence is up for tender at present. I am aware that An Post intends to seek that business again. It could experience many difficulties in having that contract renewed. If it is unsuccessful, what effect will the loss of the national lottery licence have? I understand the lottery business is worth approximately €3 million to An Post.
Is there an opportunity for an increased banking service to be allied to the post office savings business? How profitable is that business? Will it be developed in the future?
I would like to conclude by agreeing with the members of the committee who said that no stone should be left unturned when efforts are made to generate additional business to ensure our post offices can be retained.
I am sorry if the topic I am raising has already been covered and I apologise for not being here for the beginning of the briefing. I represent a rural constituency. I cannot stress enough the unquantifiable social dividend that is associated with the post office network. I understand market forces and economics. I believe the post office has a special place in rural Ireland. A great deal of activity in rural Ireland happens around the post office.
Ireland's retail sector is lagging behind, in online terms, because it has not caught up with the development of the Internet. I see an opportunity for many post offices throughout Ireland to connect with the retail sector and see how they can work in partnership on some of these issues. Many of our high street shops have been affected by technological changes. People tend to shop from their sitting rooms rather than getting onto the bus or into the car to go to the city centre. I think An Post has a huge opportunity to get in on that business. It should be the first to raise awareness in this regard. I would like Mr. Mueller to comment on that.
Mr. Christoph Mueller:
The list is extensive. As there has been some duplication, I will try to answer in a logical sequence. Deputy Harrington asked a key question about An Post's service portfolio now and into the future. I agree with him that the subsidiaries are very successful in meeting new business opportunities in areas not traditionally served by An Post. Their success, as measured by their the contribution to the bottom line, speaks for itself. In the weeks to come, I will try to answer the key strategic question of whether that success can be leveraged to compensate for the decline in mail volumes. We have a five-year plan. We will challenge that piece by piece to see whether our assumptions are optimistic, conservative or just about right.
I believe e-commerce is an important aspect of this discussion. I have said that it might have upsides and downsides. I have looked at the examples of countries like Canada, which also has a sparsely distributed population. Online shopping is now the predominant thing. The increase in the number of parcels being sent by companies like Amazon has the potential to compensate for the decline in letter volumes. If that pattern continues, the owners of supermarkets like Tesco, Centra and Aldi will comprise the next group to come to this forum. They will ask the members what they are doing about online shopping substituting its business. The macroeconomic view of things is that the amount of goods purchased will always be 100%. If online shopping increases at the expense of local retailers, they will come here and say that the local retail sector, rather than the post office, is the true centre of the little town.
We will not be able to stop this development. We will not even be able to influence it. In the absence of widespread broadband Internet access in rural areas, all of this is speculation because people are unable to complete their shopping with sufficient speed. I have not even mentioned the payment mechanism, which is the most crucial aspect. Given that broadband coverage is very patchy in some areas outside the M50, I am still surprised that the two largest airlines in the country are selling 100% of their tickets online. It is an exercise in itself for a person in the midlands to print out a boarding pass. I believe that needs the enabler to really leverage that fully. It is a good example of how new business can be generated for the post office delivery system, which is separate from the retail system.
When I was asked about Sabena yesterday evening as part of my fitness test for the Central Bank, I responded by saying that as far as I know, six books have been written about the company and I have participated in five of them. A great deal of evidence is available. I will give the short version of the long story. Sabena went bankrupt because its second largest shareholder was unable to live up to its funding obligations, which had been issued years before. The shareholder in question owed us approximately €450 million. The Belgian state was not in a position to bridge this gap because of state aid rules. The airline received special permission from the European Commission but it came too late. It ran out of fuel very rapidly even though a couple of days previously, its employees agreed to severe restructuring measures which would have kept Sabena alive if it had been able to receive the promised funding. That is the short version of the story. I am happy to go into more detail.
Technology has been mentioned a couple of times. Of course technology is an enabler. We always think about the contributions made by barcodes, sorting centres and more fuel-efficient vehicles. I believe the introduction of postal codes should gain more prominence in this discussion. That would be an enabler which would make the sorting process more efficient. It would allow us to save more money in the big sorting centres and thereby increase our potential for subsidising the post office and delivery networks. That is very important. I compare the current system to the one-year knowledge test that has to be passed by London taxi drivers. They used to have to cycles all the streets on their bicycles so they would know them.
If a letter was posted in Boise, Idaho with the address "3 The Needles, Howth, Ireland" written on it, one can imagine the problems we would have bringing it the last mile, not to mention the problems with pre-sorting in the United States. The use of postcodes is an international norm. I believe we can squeeze out more efficiencies by introducing a really good system here. The knowledge that used to be required of London taxi drivers has become redundant with the introduction of GPS. We continue to have a high justification for our delivery network because the local postman is the only person who knows where "3 The Needles" is. That is an important aspect we must factor in at an early stage. It has upsides and downsides.
The upside is that we can work more efficiently and set more money aside for the delivery network.
The universal service obligation has been widely debated and in my view it is good for the customer. However, it represents a barrier to entry for new entrants and this must be recognised if competition to improve the system is to be permitted. On the question about ComReg, it may be too soon for me to answer as I have to study the matter some more. The national lottery is very important even though the contribution to the bottom line is €2 million or €3 million. We need to have our fixed costs allocated to a broader revenue base. The licence will be for 20 years and the up-front payment for the licence is prohibitive for An Post on its own. I refer to articles in yesterday's newspapers about possible constellations but it is for the management to communicate to the public the plan for the lottery tender.
I see a real conflict. My personality is not such that I try to avoid the moment of truth. The real conflict I see is with what is closest to our hearts, what makes An Post one of the brands most trusted by everybody in Ireland. Most An Post employees are motivated to go the last mile, in particular, the local post office and the postman. This is the most unprofitable part of our entire business. That is basically the question we will have to deal with. The Government has given An Post a very clear mission. There is no risk of any sudden or significant impact. The universal service obligation is in place but we need to take a hard look at it. In the case of certain airports they were never allowed to subsidise traffic, parking and air navigation charges with the proceeds from airport parking and retail revenue. I believe the situation with regard to the post offices is similar. We have to live with the fact that in order to keep some unprofitable parts of the business they will need to be cross-subsidised. However, cross-subsidisation means that someone has to pay over the odds for other parts of the service portfolio. My contribution will be to find that balance.
The board of An Post is perceived as the honest broker which is what is required to find the right balance between the role of An Post in national society in Ireland, the taxpayer who indirectly owns the entire business and finally, the customer still being able to afford to post a letter. This is the balance that needs to be achieved. Now when I drive to work in the mornings I see so many postmen whom I never noticed before. They are all very well groomed, they wear their uniform with pride and the vehicles are well maintained. A motivated workforce is a very good starting point. My new colleagues on the management team inform me that a job at An Post is still regarded as desirable by young Irish people. That is a good start. There is no silver bullet. We have to broker the future.
Are members happy with that? Mr. Mueller has provided a very realistic assessment and we have covered a lot of ground. This committee is very committed to the last mile which is a big issue for members in their dealings with the public. We are sufficiently realistic to know that Mr. Mueller is constrained but An Post provides a public service. People are very committed to An Post and they have a connection with it. I have no doubt that Mr. Mueller will understand that connection. I look forward to future meetings with Mr. Mueller. I wish him the best of luck in his role.
Is it agreed that the committee will inform the Minister for Communications, Energy and Natural Resources, Deputy Pat Rabbitte, that it has concluded its discussions with Mr. Christoph Mueller and that a copy of the transcript of the meeting will be forwarded to the Minister for his information? Agreed.