Pegasus Solutions ( PEGS) shares rose sharply Tuesday after the company announced it's increasing the number of hotels offering online reservations through a new joint venture announced a day earlier.

Also Tuesday, CIBC World Markets analyst Paul Keung upgraded the Dallas-based hotel reservation company to strong buy in response to the news of the joint venture, which drew little notice Monday.

Under the joint venture, called Hotel Distribution System, or HDS, Pegasus is joining forces with Hilton Hotels ( HLT), Hyatt, Marriott International ( MAR), Six Continents Hotels ( SXC) and Starwood Hotels ( HOT) to market hotel rooms over the Internet through multiple sites.

In addition to hotels in those chains, Pegasus subsidiary Utell, which markets and provides hotel reservations to 5,500 member hotels, will supply inventory to the joint venture, Pegasus said Tuesday.

Orbitz, a joint venture created by the five major U.S. airlines, will be among the first sites to sell hotel rooms from HDS. Pegasus will benefit in two ways, said Keung. First, as a co-owner of HDS, Pegasus will receive revenue from each online transaction. Second, Pegasus will get revenue when a transaction involves a Utell member hotel. Keung's firm hasn't done any banking with Pegasus.

Shares of Pegasus rose $1.08, or 7.1%, to $16.20 today's trading.

Like other travel-related businesses, Pegasus suffered in the aftermath of the Sept. 11 terrorist attacks. Shares fell to $8 on Sept. 27. Pegasus reported a fourth-quarter loss of 14 cents a share on $38.9 million in revenue. That compared with a loss of 46 cents a share on $39.6 million in revenue a year earlier.

But travel demand is picking up, said Jake Fuller, an analyst with Thomas Weisel Partners, who has an attractive rating on Pegasus. In January, hotel-booking rates totaled 94% of last year's levels, he said. His company hasn't done any banking business with Pegasus.

With the creation of the Hotel Distribution System, Pegasus is taking on lodging consolidator Hotel Reservations Network ( ROOM), whose parent, USA Networks ( USAI), recently acquired travel site Expedia.com ( EXPE) from Microsoft ( MSFT).

Shares of Hotel Reservations Network rose Tuesday, up $3.47, or 8%, to $46.72. After the September hijackings, Hotel Reservations Network shares fell to a low of $20.06 on Sept. 21.

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