(FORTUNE Magazine) – Last year Web surfers booked over $900 million in travel reservations. That's less than 1% of the total travel market for 1997. But Jupiter Communications predicts that total online travel sales will increase to $11.3 billion by 2002, and travel agents seem exactly the kind of middlemen most threatened by the Internet. A battle being played out between two leading Websites will help decide their fate.

AMR, parent of American Airlines and 80% owner of Sabre, the leading travel-reservations system used by agents around the country, is betting on a Web strategy that would move its biggest customers safely into cyberspace via a service called Travelocity. Microsoft's Expedia, meanwhile, is looking to become the world's biggest and most profitable cybertravel hub at the expense of smaller travel agents.

So far, both sites are doing well. In February, Sabre announced back-to-back weeks with over $4 million in total online sales, while Expedia's February bookings were double the amount of business in December 1997. Still, says Terrell Jones, president of Travelocity and CIO of Sabre, for years to come most consumers and businesses will rely on travel agents to handle ticketing and reservations.

If true, that's bad news for Travelocity but good news for Sabre. These days 45% of U.S. travel agencies book reservations via Sabre, which also has a healthy portion of the overseas market share, with connections to over 30,000 agents in more than 70 countries. Since Sabre accounts for some 17% of AMR's profits, Jones must figure out how to make Travelocity work without killing Sabre. He is counting on the Web to create more transactions that tap into Sabre, an infrastructure so complex--and so expensive--that it hosts a database of over 50 million variables that changes five times a day as airline seats are repriced. "We have a core engine that can handle immense amounts of data and transactions. To take advantage of that," he says, "Sabre has to capture the biggest possible share of overall travel bookings off and on the Web."

To keep the agents happy, Jones' team has built 12,000 customized Websites that link agents directly to the Sabre reservations system and to Travelocity, which is loaded with travel-oriented content. According to Jones, the sites function as a learning lab for agents savvy enough to know that they need to understand online bookings. He spends a lot of time on the road, selling travel agents on the idea that Sabre's Travelocity is an ally, not a competitor. All in all, Jones has a well-designed plan to bring travel agents into the networked world while still feeding Sabre.

The problem is that Expedia is pushing Web technology to its logical extreme, with a solution that bypasses Sabre altogether. Expedia CEO Simon Breakwell doesn't see the point of partnering with the travel agents. Instead, Breakwell focuses on leveraging the connection Microsoft has with big customers like resorts, hotels, and car-rental companies so that they offer bargains on Expedia that can't be found elsewhere. Then he outsources customer fulfillment, leases time on computer reservations systems owned by Sabre competitors like Worldspan, and concentrates on doing what Microsoft does best--developing a slick, fast, customer-friendly interface.

This strategy has made Expedia one of the top 40 travel agencies in the world after just 18 months. In the past few months over 40% of its bookings came from repeat customers. A recent Forrester report projected that Expedia would generate over $1 billion in online travel sales by 2001. If Expedia really does grow at such a rate, more and more travel agents will wish they had never heard of Bill Gates.

MARY J. CRONIN is a professor of management at Boston College and strategic adviser to Mainspring. She can be reached at cronin@bc.edu