Parcels boost brings great Christmas for Royal Mail

The group said parcel deliveries rose 6% year on year in December and by 4% overall in the first nine months of its financial year.

But tough competition put pressure on pricing, leaving parcel revenues up by a more muted 1%.

Letter volumes continued to fall - down 3% in the nine months to December 27 - although Royal Mail said this was an improvement on the first half, when it saw a 4% drop. Letter revenues fell 2% in the past nine months.

Royal Mail - which is now fully privatised after the Government sold its final stake in October for just over £591 million - added that it remained on track to cut costs by at least 1% over the full year.

Royal Mail chief executive Moya Greene said: “Once again, our postmen and women delivered a great Christmas - even better than last year’s strong performance.”

She said planning for the peak Christmas season began in the spring to ensure the company was able to handle the surge in deliveries of parcels and letters.

Shares in Royal Mail lifted 3% as analysts praised a solid performance.

Charles Huggins, investment analyst at Hargreaves Lansdown, said: “Royal Mail is performing well in a tough environment and has delivered solid performance over the key Christmas period.”

He added: “The group coped well with higher UK parcel volumes in December, but competitive pressures here show no sign of easing.”

The parcels business is being seen as Royal Mail’s engine for growth, given the ongoing decline in letters.

Rival City Link was forced out of business in December 2014 amid the fallout from Amazon’s increased use of its own network for deliveries, with a raft of other firms in the sector also since warning of pricing pressures.

Royal Mail is fighting back with investment in technology to improve its service, while it also bought same-day delivery firm eCourier in November.