By Elvina Nawaguna
WASHINGTON (Reuters) - The U.S. Postal Service lost $1.9 billion in its second quarter, as the agency cut employees' work hours but struggled with an ongoing drop in mail volumes, the cash-strapped agency announced on Friday.
The loss for the quarter ended March 31 was an improvement from the $3.2 billion loss during the same period in 2012, when the mail agency had to set aside twice as much for an annual retiree benefits payment.
The independent government agency relies on sales of stamps and other products rather than taxpayer dollars to fund its operations. First-class mail, its most profitable service, decreased by $198 million in the second quarter of fiscal 2013.
Postmaster General Patrick Donahoe said the Postal Service would require a taxpayer bailout in excess of $47 billion by 2017, unless Congress acted.
The Postal Service needed to save $20 billion annually by 2016, he said.
"We do not want to get to the point where extreme options are the only options," Donahoe said. "But time is of the essence."
The Postal Service, which has been losing money for years, announced in February it planned to end Saturday delivery, a move it said would save $2 billion annually. But Congress thwarted that plan when it voted to maintain a six-day delivery schedule.
The Postal Service, which lost nearly $16 billion in fiscal year 2012, is also buckling under the weight of massive payments into its future retirees' healthcare fund, which were mandated by a 2006 law.
The agency has defaulted on several of the payments and expects to do so again this year, but it must still account for the payments in its quarterly statements.
Donahoe has urged lawmakers to pass legislation allowing the Postal Service to modify its business model and raise revenues. But lawmakers remain gridlocked, and no action has been taken to grant it extra flexibility.
The Postal Service has begun consolidating mail-processing facilities, cutting operating hours and shedding more than 190,000 jobs in the past six years in an effort to stem the mounting losses.
But it still needs Congress to free its hands, Donahoe said.
Republican Senator Tom Coburn of Oklahoma and Democratic Senator Tom Carper of Delaware called on Friday for urgent congressional action to curb the Postal Service's growing financial troubles.
"The reality is that any decline of revenue at this rate is unsustainable and threatens the Postal Service's long-term viability," said Carper, chairman of the Senate Government Affairs Committee.
The National Association of Letter Carriers said gains in the second quarter in the parcel business, a rare bright spot as more Americans shop online, showed that cutting delivery days would be foolish.
Package volumes increased by 9.3 percent or $267 million in the second quarter, compared with the same period last year.
"Instead of the postmaster general's "shrink to survive" strategy - which will only begin a death spiral for the USPS - what is needed is a dynamic business plan for the future to take advantage of the many opportunities for growth, including in the exploding package delivery market," Fredric Rolando, the union's president, said in a statement.
(Reporting By Elvina Nawaguna; Editing by Peter Cooney)