Australia Post is forecasting its first annual loss in more than 30 years as it posts a 56 per cent slide in half-year profit.

The Federal Government-owned mail, parcels and retail business reported a $98 million first-half profit after tax, down 56 per cent from the same period a year earlier.

The decline was almost entirely driven by a $151 million loss in the letters business, which was 57 per cent worse than last year's loss.

Australia Post said addressed letter volumes fell 8.2 per cent, which the company said was the worst decline since letter volumes peaked in 2008.

The company is forecasting a full-year loss for the group, which would be its first since 1982, as the second half of the financial year – after the Christmas mail peak – is traditionally quieter than the first.

Australia Post is using the forecast of a loss to lobby the Government to relax its service requirements and allow it to further increase mail prices, especially for priority items.

The company's chief executive, Ahmed Fahour, said it would soon become a burden on the budget unless the regulatory environment was changed.

"If we don't change, the Government put in a report that forecast what would be the losses over the next ten years and we are looking at a total letters business loss of $12 billion," he told 774 ABC Melbourne.

"The whole corporation will lose $6 billion, which somebody's got to pay for."

Mr Fahour said the organisation was still a "first class parcel and mail company" and could continue to run without subsidies, as long as there were changes to its service obligations.

The company has not published a full breakdown of its accounts, but it said revenue from its parcel service was up 4 per cent, and revenue for its business parcels service it was up 5 per cent.

"We've never taken one dollar of government subsidy, nor do we want a dollar of government subsidy. What we want is the permission to continue to perform," he added.

Two-tier mail system

Instead, Mr Fahour said Australia Post is currently subsidising other businesses.

"Mail that's sent is sent by corporations and governments, that's 97 per cent of the volume," he observed.

"What I'm saying is, this is a great service; they should pay their fair share to allow us to continue to provide this service nation-wide."

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Listen Duration: 4 minutes 15 seconds 4 m 15 s Australia Post could 'go bust' without changes to letter delivery rules ( Pat McGrath ) Download 7.8 MB

In September, Australia Post proposed a two-tier system that would see regular mail take two or three days to be delivered, with a premium for next day delivery.

However, Monash University economics professor Stephen King said even that plan is likely to have short-lived success.

"The letter's dead. It's just that it refuses to lie down in its grave and be covered in soil," he told The World Today.

"Your government correspondence, banks and so on, will all be via the internet, and what will matter for all in regional Australia is high speed internet access.

"The Government needs to think about that, because this is taxpayers' money. Remember, the taxpayer owns Australia Post, if Australia Post loses value, it comes out of our pocket."

The organisation representing the owners of licensed post offices (about 80 per cent of the network) and mail contractors, POAAL, said it supported Australia Post's request for mail changes to be considered by Parliament.

"We need to sit down with Australia Post to discuss its proposal for a two-speed service to properly assess what the impact might be on our members and on the Australian public," said POAAL director Bob Chizzoniti.

"The underlying problem of customers migrating away from letters towards electronic communications is still there ... Australia Post's entire operations need to be reassessed to take into account the needs of 21st century Australian society."