Countrywide is the miles for mortgages partner of American AAdvantage and have been awarding miles for some time now. They are the nation’s leading independent residential mortgage lender and recently became the first home mortgage lender ranked #1 in Customer Satisfaction Among the Largest National Home Mortgage Lenders by J.D. Power and Associates. We talk about miles with Michael Taliaferro, executive vice president of consumer markets for Countrywide.

InsideFlyer
With the millions and millions of members that you guys have I would image you’d be turning away customers. How does awarding miles help you and your customers?

Mike Taliaferro
The award is one of the richest awards offered. Most individuals earn with their credit card or 100 miles for a rental car or staying at a hotel. (With us) it’s not unusual for them to bag a 30,000- or 35,000-mile award.

IF
I’m going to guess you’re giving away more than a free ticket for every customer you get.

Taliaferro
If you’re talking domestic roundtrip, it’s close to it.

IF
That’s good business for you guys.

Taliaferro
Yes, it has proven to be a great retention tool. When it’s time to refinance they think about us and come back and, more often than not, we’re able to do a second loan for them.

IF
In doing some research in the re-buy area, most people discount who their with and look everywhere else. It sounds like the same strategy that works for you is why the airlines like frequent flyer programs; it’s a little bit of a retention tool as you say.

Taliaferro
It has proven to be the case and you’re right, a lot of people have a mistaken impression about mortgage banking that they already got my loan at 9% so why would they want to do me at 7%, which they really don’t understand how it works. As you well know, we make the revenue off the serving of the loan.

IF
You’re actually with a couple more programs than AAdvantage. Are those working out for you?

Taliaferro
The currency that was created by American and the AAdvantage program is, I think, one of the best ones. The other one we’re involved with that does real well is Hilton HHonors. They allow their members to double up. They give an award for miles and points.

IF
Do you find that the hotel customers are different than the airline customers?

Taliaferro
No different from a profile standpoint. Sheer numbers alone, there are more members in AAdvantage. The mailing and the insert and the marketing is five times as many members when you’re marketing to the AAdvantage as the Hilton. It’s reflected in the unit count in the closing. But it’s a very successful program.

IF
The consumer just doesn’t believe that your interest rates are as good as anybody else’s when you give away the miles. Has that been a little bit of a stigma?

Taliaferro
Well, a little bit because there is that element of skepticism. But what I do is encourage them to call or have their brother call who is not a member and find out what the rates are. We are very concerned and careful about any kind of despaired pricing and they will find that they get the same quote with or without the award.

IF
Are you loaning money in all 50 states?

Taliaferro
Yes.

IF
Was there ever a limit with regard to which states allowed you to give away miles or incentives?

Taliaferro
There was an element of the real estate part of the program that was limited.

IF
But in terms of leading there’s no limit?

Taliaferro
There are no limitation on any of the states.

IF
Do you like it when you get those million dollar loans and the guy wants miles?

Taliaferro
Yes, the economics of a higher award are certainly justified by the serving revenue we derive off a million dollar loan. That’s the beauty of the one-time award relative to the size of the loan. There’s an individual that obviously I can’t name, he is an executive with a large bank on the West Coast. Somewhere around a 12 million dollar liquid net worth and what I mean by that is, if he had to get his hands on 12 million dollars tomorrow he could. He financed with us a second home, a 500,000-dollar loan so he could get the 50,000 miles. He could have bought his own plane but that’s how much they love the miles.

IF
Are you going to be in this business for a long time?

Taliaferro
We’re counting on it. I don’t see any reason not to.

Lendingtree.com is partners with more frequent flyer/frequent guest programs than anyone else. And they really aren’t a mortgage lender at all. Lendingtree.com is actually the only online loan marketplace where lenders compete for your business. One application works with dozens of lenders to get the better rates and in turn earn the miles. We talk about all this with Tom Reddin, president and chief operating officer of Lendingtree.com.

InsideFlyer
You’ve been doing this since March 2000. How’s Lending Tree doing?

Tom Reddin
We launched our affinity program with airline partners a couple of year ago. Right now we have programs with Delta, Northwest, Continental, US Airways and United. We also have a program with Priority Club. The way the basic concept works is, say you have a $300,000 home and you want to sell it and buy another one for the same value and you want to get it financed. A $300,000 home would be 217,500 miles if you use one of our realtors to sell your home, one of our realtors to buy your home and a Lending Tree lender to finance your home. It’s a rich program. The consumer goes through a special site. At the completion of the closing, the customer gets the miles.

IF
You mentioned Priority Club, but aren’t you also involved with American Express?

Reddin
Yes, Membership Rewards. That’s a real safe program.

IF
Your business must have picked up in the last year?

Reddin
Yes, we have number one brand awareness and online lending. All products are doing well. On the lending side of the business we have about 170 lenders on our network. We bought a company a couple of years ago called Homespace, they had a network of real estate and brokerage companies around the U.S. and right now we have about 650 brokerage offices or name brands and realtors. We send customers outside the airline program to Lending Tree.com to this lending network for folks who are looking to buy or sell a home.

We also use the various affinity relationships with the airlines to connect consumers to a real estate broker. The broker interviews the customer and then matches the customer with the agent that fits their needs. Then they close the real estate action and send a copy of their closing documents to get their miles. On real estate it’s 3,000 miles for every 10,000 dollars of value. On the mortgage home equity it’s 1,250 miles for every 10,000 dollars of finance activity.

IF
Would auto and personal unsecured roll into earning miles?

Reddin
Right now just auto.

We found that only about 13 or 14 percent of our readers actually earn miles through any mortgage. They feel they will pay more. The close rate tends to be higher than the close rate in the non-affinity channels. We don’t price up to pay for the miles, and most of the airlines do this with all partners to protect their members through contract process.

IF
How did you get into the business?

Reddin
We started with the Delta program, when we purchased Homespace we expanded to the other airlines.

IF
Are there a lot of people with million-dollar homes that go after the miles?

Reddin
The average transaction for real estate is $250,000. If you did a million-dollar home it would be 300,000 miles; 600,000 if you’re buying and selling.

IF
Is it true you’ve given away more than 40 million miles?

Reddin
We’re up to 50 million miles right now.

We recently had a chance to talk briefly with Robert Sahadevan, Executive Vice President of United Loyalty Systems (in charge of all things Mileage Plus not related directly to the airline), Gloria Berndl, in charge of all things Mileage Plus related directly to the airline (Premier) and long time favorite of our readers, Jim Davidovich, who is now the direct liaison between Mileage Plus and Star Alliance.

This is about Mileage Plus, not the airlines’ woes.

InsideFlyer
Where do we start when talking about Mileage Plus?

Robert Sahadevan
Let’s start with communications. From Mileage Plus’s perspective, we try to manage the program through value. From my perspective, given the state of email and the electronic communications vs. the direct mail type of communications, they are not at a level yet where we know what sort of response rates are and how engaged one medium, electronic vs. direct mail, really keeps individuals, so until that sorts itself out Mileage Plus has no plans to change our practice, which is to send statements to members who have activity. We look at this as a way to keep people engaged. It is an expense, but I think it’s a value to keep people in the program.

IF
First USA, your credit card partner, is currently offering double miles. Is this the direction other partners are going?

Sahadevan
First USA and their precedent companies have been partners with Mileage Plus for a long time. I think when First USA acquired First Chicago, we got their expertise. It’s one of the reasons when our contract came up for renewal we decided to stay with First USA. I think this double mile promotion is a not only a testament to First USA but to Visa and how much they are expanding with Mileage Plus. I think all card issuers are interested in volume as well as acquisition. I think what the credit card industry is seeing is that loyalty programs want to make sure the spend is on their card. Credit cards that don’t offer loyalty or reward type programs are struggling.

IF
Is the First USA offer of double miles unique to them or are they reacting to the climate of the industry?

Sahadevan
I think there is some overlap in people who would be interested in the credit card. I think all travel related card issues are seeing their volumes down because of lack of travel. People don’t fly every day, but they do generally charge something.

IF
Did 9/11 change the way Mileage Plus operates?

Gloria Berndl
No, but the implications of 9/11 and the travel related environment has caused us to look harder and to know that it’s going to be more difficult to engage customers and to enjoy the benefits that we’ve had from their loyalty. So I think it’s probably, if anything heightened the awareness and the critical nature of keeping those folks loyal. But I don’t think it’s changed any elements or views.

Sahadevan
I think the value of Mileage Plus was underscored by 9 /11. I think it provided a channel of communication for us to go back to our customers and reassure them what United was doing and that the travel process was safe and not a hassle. It’s a two-way relationship.

Berndl
The airlines and the customer, and I think that having the loyalty link on a one to one really works to their benefit. I think it deepens the relationship.

IF
What about other partners?

Jim Davidovich
I think another area we’re seeing when you are talking about partners is the Star Alliance. As you’re well aware, over the last 10 years of the 21-year history what we’re trying to do on the airline partner side is step back and say, “You can’t continue to add value and complexity and have an understandable program.” So I think what we’re trying to do is some differentiation on the Star Alliance side and through simplicity. We know you have the information about the Star Alliance side, but one of the key factors when we started to develop all of this was we wanted customers to say, “If I’m going from point A to point B, I want to know in my program what the cost is. I know how much it’s going to be for me and to budget for that.” Whereas mileage-based programs have its zones and complexity. The more hoops you make people go though the more frustrated they get. We firmly believe that this was a huge step in getting to the point where we have one award chart for United and all of Star Alliance. On the Star side, we’ve got three new partners, on the Mileage Plus side it’s two. In June, Star announced that Finnair, LOT and Malaysia would join. We’re looking for a joint launch of all three in Star in the first quarter of 2003.

IF
I see you got the San Francisco Chronicle to give away miles for a subscription.

Sahadevan
It’s new and it was a risk taker, but I think both parties are happy with it.

IF
It would be interesting to do a magazine deal to redeem your miles.

Sahadevan
Non-air redemption activity is something that a lot of loyalty programs are looking at and we continue to do.

IF
On the topic of non-air redemption, is it a topic that is overblown?

Sahadevan
I don’t think it’s overblown, but I think the consumer seems to demand it. In running a travel loyalty program, what we care about most is the travel awards. If we can deliver them, that value is what we’re trying to do.

IF
It seems like redemption is up around 11 to 12 percent over last year. Is that similar to what Mileage Plus is seeing?

Sahadevan
Yes, we’re seeing in the double digit, in use of miles that are being redeemed.

IF
Over a year ago more people were using their miles for upgrades than for free travel, is that a trend?

Sahadevan
It’s always been a substantial number of the awards used for that (upgrades) and I do see a trend. After we announced the no expiration of miles, we saw a considerable spike in usage for upgrades. But it’s slowed down because they don’t expire and they can wait to use them.

IF
Are you seeing anything different or unusual in behavioral habits?

Sahadevan
I don’t think it’s unusual that award usage being up. It is driven by people saying I’m uncertain about the future and I want to use miles and conserve my cash, or what is going on with the increased redemption. Is it economic due to the state of the economy or is it because of things like continual dropping the off peak awards and you need to use your awards? We see awards up but what’s driving it is hard to say.

IF
The buzz out there is that you’re going to raise your award chart to 30,000 miles.

Sahadevan
I think everyone is always talking about that, not just consumers. On the subject of upgrades, what we’re trying to educate people about is to make sure they understand that upgrades are something that comes after we sell that seat. I think one of the things people are doing is looking on the Web site and seeing that there are empty seats and wondering why they can’t upgrade for that seat. The reality of that is the booking pattern for the upper class seats doesn’t happen until close to departure. So we don’t open up those seats until we know that revenue won’t be booked there first.

IF
What’s real positive with Mileage Plus?

Davidovich
I think our biggest message that we wanted to communicate is Star Alliance awards. When we compare this to other alliance programs, it’s a great value. Previously, if you wanted to connect to someplace you needed two different awards on two different carriers, but now with Star Alliance you can fly multiple carries and use your United miles. A factor is you talk about increased award redemption, it now gives you the ability that you don’t have to fly the same carrier across the water and worry about who flies where, and we can process the award more quickly.

IF
The consideration is so much on the one to one marketing these days. Is there any thought to perhaps going out to the general market a little bit more which is not something that airlines and loyalty programs have tried to do over the last five or six years. Is that possible in the philosophy of where you want to go?

Sahadevan
I think what I was referring to before is just look at general marketing out there and I think a lot of people talk about the nirvana going one to one. I think it’s a great goal but the reality of it is nobody’s database could know that much about an individual. We’ll hope to get to that in place of one to one, but in the meantime we’ll have to talk to relevant sets of consumers in big enough groups where it is economic to do so. Our challenge is to do that type of marketing.

IF
What partnership are you most proud of today?

Sahadevan
Our Safeway partnership. We see a great uptake in the usage of that and we’re very happy to have that as a partner.