Australia Post has returned to profit despite another significant and damaging decline in its traditional letter deliveries business.

Full-year profit after tax rebounded to $36 million after the continued terminal decline of "snail mail" prompted last year's $222 million loss.

But ongoing digital disruption has seen addressed letter volumes fall by another 9.7 per cent, contributing to a $138 million loss in the postal business — the largest decline in Australia Post's 207 year history.

Chief executive Ahmed Fahour has described the profit as "modest" and driven by the rise of Australia Post's parcels business, which has grown by eight per cent in a competitive market.

Despite the turnaround, Mr Fahour painted a pessimistic outlook for traditional letter deliveries, which will remain a loss-making part of the Australia Post business.

"We do have a business that is in structural decline. There's no question about it," Mr Fahour told the ABC.

"We've stemmed the losses in our letters business but it's still losing money. We lost $138 million in delivering the mail this financial year.

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"Unfortunately Australians are saying we want alternatives, we want to communicate in a different way. And that large volume decline means 43 percent less letters per letterbox compared to our peak eight years ago.

"So we've nearly halved the size of the business by Australians switching to alternative forms."

However, Mr Fahour said Australia Post remained committed to traditional letter deliveries despite the mounting losses.

"We will be there until the last letter is delivered. But unfortunately digitisation and the digital economy means that Australians are shifting very rapidly," Mr Fahour said.

"They're going online, they're using social media, they're using email and texting. The reality is that they're communicating but they communicating in digital ways."

Australia Post now believes the losses are more manageable after reforms to the business, with the five-year loss forecast reduced from $5 billion to $1.5 billion.

Mr Fahour also reaffirmed Australia Post's universal service obligation to maintain deliveries to rural and remote Australia.

He also confirmed Australia Post was continuing to experiment with drone technology to deliver parcels, putting it in direct competition with the likes of Amazon and Google.

Follow Peter Ryan on Twitter @peter_f_ryan and on his Main Street blog.