Shame On You, Mr. Smisek

On this weekend's mileage run, I had to stared at this Hemispheres magazine a lot:

After a while, I opened it up. Typically, the first thing I read is the letter from the CEO of the airline. I like this section, because it gives you a small glimpse into the airline. Typically the note is about an amazing employee, or upcoming change. At the very least, the letter is upbeat.

The letter from Smisek in November's issue is one of the worst I have ever written:

I copied this from the online version of the November Hemispheres Magazine. They did not have a direct link.

Yes, Mr. Smisek has spent his November letter complaining about the tax code. He believes that the airline industry is unable to complete against foreign competition due to this "irrational [tax] structure."

My beef isn't with the argument made in Mr.Smisek's letter. Rather, the letter is poor taste and the wrong format to address this issue. The letter is not a call to arms ie call your congressmen, but rather a CEO asking for sympathy from his customers. We aren't going to be able to compete if the tax structure isn't fixed. This month's CEO letter seemed like they lifted it from a letter Mr. Smisek wrote to members of Congress. In my opinion, its in poor taste to subject your trapped passengers to your political beliefs.

Now to the meat of his letter. While I agree with some of his arguments, I do not think they are well though-out.

For instance, Mr. Smisek is correct to point out:

"Many modes of transportation use Customs Agriculture and Immigration Resources but aviation customers and airlines pay disproportionately more for using those services. Land, sea, car, rail and bus travelers pay little or nothing." 

The problem with his argument is that flying is a choice. By making the decision to fly one is agreeing to pay the fees set by the government for the convenience of flying. For me, I pay the taxes on a flight to Connecticut, because its faster and cheaper for me than driving (I would have to rent a car). The tolls alone from driving DC to CT can add up to $30+. Add in the cost of gas plus the stress of driving I-95, I will take the TSA strip searches, government imposed taxes and decking leg-room in coach any day.

In addition, his argument that foreign competitor have an unfair advantage due to an easier tax code is baloney. First, few if any foreign airlines are allowed to carry passengers between two US cities. Therefore, a passenger fly DCA to BOS can not go a foreign based airline to save on US enforced taxes and fees. One can only assume that Mr. Smisek argument was talking about international travel being unfair.

When I tried to check the difference in taxes on international travel between US based carriers and foreign carriers it was difficult. Many foreign carriers lump the taxes/fees into the final price; instead of breaking them out between the base fare and taxes/fees. For instance, a trip to Sydney in December on Qantas produces this:

The $2.737 includes the base fare, taxes fees and carrier charges. Unlike Qantas, British Airways does break down the fees:

They go one step further and break down the fees in a pop-up:

Most of the fees that British Airways is charging are ones that we pay as US based carriers. Using the same trip to Sydney, we find out the taxes and fees will be $173.20. As we can see, the taxes and fees are similar to British Airways:

I know this is one example. I am positive Mr. Smisek and his team can show me many working with his argument. What Mr. Smisek wants to overlook is the power of brand loyalty? Ask 10 people on the street who they would fly from the United States to Australia, most of them would pick a US-based carrier. Why? That is all they know. Some might say Quantas, because they are Australia's carrier, but most will wind up booking tickets on United, American Airlines or Delta. Again, the competition argument does really hold up due to customer ignorance of other options.

I lost a lot of respect for Mr. Smisek with this CEO Letter. I have not criticized United or their CEO on the recent devaluation of their award chart, awkward new "friendly" marketing campaign and overall experience flying United. Why? Because its a business and I understand that changes are needs to please the pocketbooks of shareholders. However, I don't believe its fare to spend your CEO rant and raving about the tax system, because it hurts competitions. Not once did you provide an specific example of where the tax system is working against the airline industry. Instead, Mr. Smisek you used generalizations in the hope of gaining sympathy from your travelers. The same travelers that you nickle and dime. $25 for a checked bag $37 for a seat with more leg room and $3 for a snack. You can't continue to cry poverty when airlines are making billions on ancillary fees.

Mr. Smisek, if you have a problem with the US Tax Code, do what every other industry does. Hire a lobbyist, go testify at a congressional hearing, and have your Political Action Committee donate to politician's reelection campaigns. Don't spend your November CEO letter complaining. The November letter is suppose to be devoted to what you are thankful for.

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Mortgages and Miles: My Two Loves

In full disclosure, I am a licensed mortgage officer (NMLS # 527599) with the ability to sell mortgages in Maryland, Virginia and Washington, DC. The opinions of this post are my own and do not represents opinions held by my company. This post should be taken for informational purposes only. I do not work with any of these companies directly and will not earn money from you applying for a mortgage from the links below.

Mortgages and points are my two favorite things. Mortgages consumed most of my days and the time that is left is consumed by collecting and spending points. From my readings, one of the popular points earning strategies, 5 or 6 year back, was refinancing your mortgage or taking out Home Equity Lines of Credits or Loans.


I wanted to check to see if there was ways to earn points by refinancing your mortgage. To my surprise, there are still ways to earn points for this purpose. One can obtain a mortgage and earn miles on three airlines: United, American Airlines and Southwest.

Each has there own rules and it is important to follow the rules; otherwise, points will not be award.

UNITED

Chase Bank offers one the ability to earn up to 50,000 United MilagePlus miles by getting a mortage. The amount of miles one recieves for obtaining a mortgage from Chase various by loan size, in a three tier level. Here are the tiers:

Mortgage Loan Amount	United MileagePlus Award
Up to $249,999	12,500 miles
$250,000 - $500,0000	25,000 miles
$501,000+	50,000 miles

The property tied to the mortgage must be a one to four unit property. To get earn the miles, the mortgage must be a "first trust" mortgage and not a Home Equity Line of Credit or Loan.

Information about the program can be found on this website. Miles can only be earned if you initiate the request through the following phone number, exclusively for United MileagePlus members: 1-800-836-4835.

Mortgage loan application submitted through a Chase branch or a Chase mortgage branch office are not eligible for miles. You must submit your application through the phone number on the website.

Miles will be post six to eight weeks after you close on your loan.

Southwest

The Southwest offer is exactly the same as the United offer above. The only difference is the phone number that one must call. Southwest's dedicated phone number is 1-866-550-9870. If you would like more information on the Southwest offer, please go to this website.

Again, mortgage loan applications submitted through a Chase branch or a Chase mortgage branch office are not eligible for miles. You must submit your application through the phone number above.

Miles will be post six to eight weeks after you close on your loan.

American Airlines

The American Airlines offer invovles Wells Fargo Home Mortgage. One can earn 1,000 AAdvantage miles for every $10,000 financed on a new purchase, refinance and home equity loans or lines of credit.

Information about the program can be found here.

To particpate in this offer, you must call and close your loan through 1-866-324-8127. Like the United and Southwest offers, one can not earn miles by obtainign a mortgage through a Wells Fargo Branch or Wells Fago Home Mortgage office.

The most important part of earning miles under this offer starts at the begining. According to the rules:

           To be eligible for miles, you must state your intention of applying through the
           American Airlines AAdvantage Mileage promotion and request to earn miles at
          time of application. Wells Fargo Home Mortgage requires the AAdvantage
           number in its system at application. This program is not retroactive. If the
           AAdvantage number is not provided at application, AAdvantage miles will not be
           awarded.

Unlike the United and Southwest offers, one can earn miles for home equity line of credit and home equity loans. According to the rules:

         For new home equity transactions, miles are based only on the initial amount
         advanced on the closing date (funding may occur upon expiration of any applicable
         rescission period), not on the total line of credit amount (unless fully advanced on the
         closing date) or on future advances.

If I was going to try to earn miles through the Home Equity Line of Credit program, I would advance the entire amount of the line of credit, even if I did not need it. Shortly after closing, I would pay back the amount of money, I didn't need. Yes, one would incur a small amount of interest payments, but I think the additional amount of miles earned would offset that extra burden.

Allow six weeks after your funding date for AAdvantage miles to post to your account.

What to Watch For?

I have been thinking for a long time: how can the banks afford to give out these miles for mortgages. My best guess is that by forcing you to work with the phone staff, they are saving money that they would have to spend on commission for loan officers. However, could these mortgages for miles come with increase mortgage rates or fees.

To the average consumer, the difference between a 3.750% rate and 3.875% rate is minor. However, over a $100,000 mortgage, an 1/8 (.125%) point equals $125 more a year or $3,750 over a 30 year mortgage. Is 12,500 miles worth paying $3,750 more in interest payments?

I am not saying that participating in these programs will result in higher interest rates. All I am cautioning is for you to shop around the interest rate before locking it with a mortgage company or bank.

Then, I started thinking maybe the banks will increase your origination fee to cover the miles. Rental car companies charge a "frequent flyer fee," so the idea is not crazy. When talking to the phone representative, I would ask them if there is an additional fee for participating in this program. By law, they are required to disclose it to you within 3 business days of applying for a mortgage.

The way to see if a fee is being charged is to look at the Good Faith Estimate. This is a three page document that list the fees and costs associated with obtaining a mortgage. The area to pay particular attention to is on page two:

Particular, Section 1 and 2. See below:



The section "Our Origination Charge" is the fee that you pay the bank/mortgage company for getting the mortgage for them. Typically, the charge is under $1,000 unless there are no charges in the title company section. Asking for two Good Faith Estimate, one that earns miles and another one that does not. I may be making a big deal over nothing, but its easy for fees to be snuck in.

When getting a mortgage, due diligence is important.

Conclusion

If you are in the market to refinance your mortgage, these offers can be great. On the other hand, if you are in the market for a purchase mortgage, I would avoid this offer. When working with a 1-800 number mortgage staff, a different person will be working with you, each time you call.

Working with the telephone staff for refinancing is fine, but mortgages for purchases are different animals. Purchase mortgages involve appraisal and financing contingencies and you need a person in your corner to make sure those contingencies are met. Phone staff won't have the time to ensure those contingencies are met.

Refinancing your mortgage or getting a new mortgage just to earn points can be expensive and dangerous. However, if you are in the market for a new mortgage or have a high interest rate, this is a great way to pick up a free flight or two.

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