(FORTUNE Magazine) – The struggle between old-fashioned travel agencies and Internet travel sites such as Travelocity and Microsoft's Expedia has been among the bitterest of the collisions between the new and old economies. With more people buying airplane tickets online, traditional agencies--their yellowing posters of faraway places peeling off the walls--have watched their business slowly wither. In 1994 there were 33,000 agents, according to the American Society of Travel Agents; by 1999 there were just 27,000. And it's only going to get worse: A Bear Stearns report asserts that 25% of flesh-and-blood agents are at risk of going out of business in the next few years.

With these two groups locked in a struggle for survival, you wouldn't expect there'd be much to bring them together. But leave it to the airlines to find a way to unite such entrenched antagonists. Last November, Continental, Delta, Northwest, and United airlines announced that they would form a Website to sell everything from airline tickets to rental cars and hotel rooms. In March, American Airlines became the fifth equity partner in the as-yet-unlaunched site, which was set to announce its name--Orbitz.com--in mid-June. (Up till then the site had been publicly known only as "T2," the nickname given to it by the media.) In addition to the five partners, there are now more than 30 affiliate airlines that will post their fares on Orbitz. Users will be able to search fares and buy tickets from more than 450 other airlines.

The specter of a travel agency owned by the airlines has set the stage for a dramatic battle. With more than $100 million in funding and the massive resources of the airline industry, Orbitz will become a power in online travel the moment it debuts. But despite those advantages, Orbitz faces formidable adversaries: well-funded sites such as Travelocity and Expedia that have established strong brand names online. Forget a David vs. Goliath battle. This is really a Goliath vs. Goliath dogfight.

If it were any other fledgling travel site, Orbitz would be dead in the water. Of course, it isn't just any site. Orbitz's members control 90% of the seats in the domestic air travel business. "If it weren't for the fact that they are the suppliers themselves," says Mark Rowen, a Prudential analyst, "I would say that they have no chance at all of being successful." The site is likely to have another key leg up: Orbitz is negotiating a deal that will allow its users to buy tickets using their frequent-flier miles--an option not available on other travel Websites.

Orbitz will save the airlines money. Though the site will charge the same commissions as other electronic agents (Internet commissions are capped at $10 per ticket), it will discount the fees that the airlines are typically charged to have their flights listed in the giant databases used by travel agencies of all sorts. (Orbitz is doing this essentially by creating its own high-speed database.) In return for this savings, the airlines must promise to provide Orbitz with all their Web fares and promotions.

Orbitz's potent alliance has brought howls of protest from travel agency competitors and has raised serious antitrust concerns. Competitors worry that member airlines will find ways to offer low-fare tickets on Orbitz while withholding them from other intermediaries. "This joint venture has the earmarks of very problematic activity," says Bert Foer, president of the American Antitrust Institute. Bear Stearns analyst Robert LaFleur, who recently co-authored a report on the online travel industry, agrees. "It does raise the specter of pricing collusion," he says.

The comments of one prominent airline executive have intensified that concern. On May 2, Donald Carty, the CEO of AMR Corp., the parent company of American Airlines (and until recently a part owner of Sabre, Travelocity's corporate parent), appeared before the Senate Judiciary Committee in a hearing about airline competition. Referring to Orbitz, Carty testified that "some offerings will be made on this site that won't be made on other sites, at least by the equity owners of the airlines." In other words, Orbitz will have special deals that won't be available elsewhere. Orbitz's chief technology officer, Alex Zoghlin--the site's only executive--says that Carty misspoke. (An AMR spokesperson referred questions to the public relations agency for Orbitz.)

In a complaint filed with the U.S. Department of Justice in February, the American Society of Travel Agents accused Orbitz of being a monopolist. "I can't imagine any other industry in this country that would be allowed to do this," says Joe Galloway, president of ASTA. The Justice Department has agreed to investigate. At press time, the Senate Commerce Committee was set to address the issue on June 22 in a hearing about Internet travel.

Despite the widespread accusations, Orbitz's Zoghlin dismisses the notion that the site will violate antitrust laws. "On its face, it's laughable," he says defiantly. He argues that Orbitz is expanding the competitive landscape, not constricting it. Among other things, the site will inevitably lure some users away from the individual airline Websites that Orbitz members will continue to maintain.

Moreover, Orbitz will have no connection to its five founders, Zoghlin insists. The five airlines are essentially limited partners: They have equity stakes, he says, but no voting rights. "When I solicit their input, it's just that," says Zoghlin. "There's no direction...just opinion." Zoghlin says that Orbitz has contracts with all of its members, including the partners, stating that the site will be "unbiased" and "independent." (Citing this independence, all five airlines declined to be interviewed for this story.) If, for example, Orbitz needs more funding, Zoghlin says the site will not approach the airlines for the money, thereby reducing their potential influence.

Zoghlin says that protections are being built into the system. For example, although Orbitz--unlike Travelocity and Expedia--will have access to the airlines' Web-only specials, all other pricing information will be sent to Orbitz through an independent third party, presumably preventing the site from getting information that won't be available to competitors. "If for some reason we wind up building something that allows [a member airline] to take advantage of it, I will change it," he says. (Zoghlin thinks that customers will be attracted by Orbitz's MIT-designed search engine, which he says will be the fastest in the world, sifting billions of flight combinations in just seconds.)

Zoghlin may be protesting a bit too much--it's hard to see the airlines relinquishing all control. But it may be a while before the truth emerges. For an Internet company, Orbitz has been moving with all the alacrity of a crop-duster with a faulty engine. It had no brand name until June; it still has only one senior employee, Zoghlin (who founded Neoglyphics, a FORTUNE Cool Company, in 1997); it has no headquarters (Zoghlin works out of Chicago); and it has no customers. And with the site not expected to begin operating until September, Orbitz's competitors will have had nearly a year to drum up business and governmental opposition to it. Zoghlin had better hope that frequent-flier options and high-speed searches are what consumers really want from a travel agent. Otherwise, this business may never take off.

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