POSTAL group Consignia is set to press ahead with huge cost-cutting plans, which could include axing thousands of jobs, after announcing record half-year operating losses of £100m.

After accounting for exceptional items such as redundancy costs and a write-down of assets in the parcels business, the losses jumped to £281m, more than twice as bad as the previous half year.

Consignia chairman Neville Bain said Parcelforce, which has now been losing money for a decade, would now "consume" almost £200m by the end of the year, and made it clear that the losses could not be sustained. The 12,000 Parcelforce workers could now face structural changes in the New Year as managers move to stem the losses.

Mr Bain said the figures underlined the urgency behind a plan to save £1.2bn by April 2003, equivalent to a 15 per cent reduction in Consignia's cost base. The Communication Workers Union has warned that up to 20,000 jobs could go.

John Roberts, Consignia's chief executive, said he was disappointed at the "modest" gains in productivity in Royal Mail. Postal workers were delivering increasing volumes of mail but there was a "pressing need" to improve productivity further and to boost the quality of service. "The key signal from the results is that our costs are running ahead of income," he said. "We have got to improve efficiency if we are to return to profit."

Additional revenue was outstripped by a £65m increase in Consignia's pay bill, £17m in higher transport costs and £48m higher operating costs from investment in technology, the figures showed.

Mr Roberts said competition was increasing and trading conditions remained tough, adding: "It is imperative that we get £1.2bn of on-going cost savings by April 2003 to reshape the business in a very competitive environment."

The £100m operating loss for the first six months of the financial year compared with a £20m loss for the same period a year ago, while the post-tax loss of £281m compared with £113m for the previous half-year.

The mail and parcels markets grew by 2.7 per cent in the first six months of the financial year compared to 7.7 per cent in the previous half-year.

Peter Carr, chairman of consumer watchdog Postwatch, said: "Surely the time has come to review the future of the Consignia leadership following yet another set of appalling results.

"Consignia remains a monopoly and it is difficult to understand how a profit in excess of £500m five years ago can be turned into escalating losses at a cost of over £2bn in capital expenditure."