The Federal Government has given Australia Post the green light to implement a two-speed letter delivery system, while stamps could increase to $1, in an attempt to keep the service afloat.

These sweeping changes come as Australia Post announced a 56 per cent drop in half-yearly profit last week, with the dive driven by mounting losses of $151 million in its letters business.

Communications Minister Malcolm Turnbull endorsed the idea during a meeting with Coalition MPs on Tuesday morning, saying there needs to be an “open kimono” approach to Australia Post.

• Calls for Australia Post chief to step aside
• Australia Post faces catastrophic losses

Speaking on ABC’s 7.30 on Tuesday night, Mr Turnbull said the only other alternatives would be “massive subsidies of $7 billion of taxpayers’ funds over the next decade, or abandoning the letters business altogether”.

“We (the government) have been very upfont about this (problems faced by Australia Post),” he said.

Mr Turnbull said Australians were sending a billion fewer letters than they were in 2008, with the letters business heading more and more into the red.

He said businesses and governments were the main users of the letter post and the only reason they were still sending letters was inertia.

“They haven’t updated their billing systems and they haven’t addressed their own internal mechanics. But the trend is inextricable,” he said.

Earlier on Tuesday, Mr Turnbull also flagged that the changes could create job cuts within the letters department, however said employees would have the opportunity to be retrained and redeployed with the postal service.

“Redundancy would be the last resort,” Mr Turnbull said.

“Within three years the letters business will be back in the black – where it should be.

“This is absolutely critical.”

Mr Turnbull said a priority service would be introduced by September.

Australia Post would introduce a two-speed mail service, with a regular service operating two days slower than the current delivery speed, and a premium-rate priority service.

Australia Post will also seek approval from the Australian Competition and Consumer Commission to raise the basic stamp price from 70 cents to $1.

The ACCC could knock back the application.

A 60-cent stamp price will remain in place for pensioners and Commonwealth concession card holders, and Christmas cards will still cost 65 cents to send.

“While Australia Post has been able to offset these losses by growing its parcels business, losses in letters are now so large that they are overwhelming all profitable areas of the business. Without reform total projected company losses could reach $6.6 billion over the next 10 years, with letters losses of $12.1 billion,” Mr Turnbull said.

‘We must raise price’: Australia Post chief

A coalition of printers, mail houses, licensed post offices and unions, called the Coalition of Mail Service Stakeholders (CoMs), last week called for Australia Post chief executive Ahmed Fahour to step aside.

On Tuesday, Mr Fahour said at a press conference in Melbourne, that the changes would mean Australia Post could sustain the mail service while focusing on its profitable parcel and express delivery businesses.

“Australia currently has the lowest basic stamp price in the developed world,” he said.

“Unfortunately we must raise that price to ensure we can maintain the service, including five-day-a-week delivery and over 4000 post offices.”

Mr Fahour said up to 97 per cent of mail was sent by business and government.

“Taxpayers, through Australia Post, can no longer afford to keep subsidising corporate Australia by running a below-cost letters service predominantly for this sector,” he said.

Mr Fahour said even with the price rises, the mail delivery business would still lose money.

“We will be aiming to get it back to break even. The letters business won’t make a profit,” he said.

Mr Fahour was asked about his $4.6 million pay package and the number of executives earning more than $190,000 a year.

The US Postmaster General’s wage is a mere $511,000.

He said Australia Post was competing against multinational companies in parcel delivery and logistics, meaning they needed the best talent to stay competitive.