(Reuters) - U.S. airlines are doing a better job in overall performance, improving on-time arrivals and handling of lost bags, while drawing fewer customer complaints, an annual report based on federal data shows.

An analysis of U.S. Department of Transportation airline performance data shows that the industry's overall quality rating improved to -1.08 in 2011 from -1.20 in 2010. The rankings are based on four factors: On-time performance, denied boardings, mishandled baggage and customer complaints.

Dean Headley, associate professor at the W. Frank Barton School of Business at Wichita State University and one of the study researchers, said industry performance on all four factors improved this year. Things have gotten better overall since 2007, when the airline quality score had its worst showing since the yearly report was begun in the early 1990s, he added.

"Whether or not the consumer can actually notice this is still kind of up for debate," Headley said. "Sometimes small changes don't always translate to better expectations and better perceptions of outcomes."

Many U.S. airlines have cut costs and retired their least fuel-efficient planes in recent years in a bid to return to profitability.

"Fuel is one of those things they can't do much about, but they can control other things," Headley said.

Among the 15 carriers rated in the latest year, 10 had a better overall airline quality rating, the report said.

Smaller or discount carriers such as Hawaiian Holdings Inc, JetBlue Airways and Alaska Air Group had stronger showings than their bigger counterparts in the current ranking.

AirTran, which was acquired last year by Southwest Airlines, was No. 1 overall for the second-straight year as customer complaints dropped and on-time performance improved. Continued...