Qantas Airway's CEO Alan Joyce said on Monday that talks to set up an Asia-based premium airline are still ongoing and that the airline's domestic bookings have recovered after months of industrial action that led to a drastic grounding of its fleet in October.

"Talks continue, and it remains premature to make any announcements at this stage," said Joyce at the airline's strategy day.

He added that the new carrier will capture premium customers that are frustrated with the lack of frequencies and limited flight time options into Asia, dispelling media reports last month that Qantas is dropping plans for the premium carrier because of the economic uncertainties in Europe.

The airline's domestic bookings, including those from corporate accounts, have also recovered to "normal levels", said Joyce.

"We can now provide absolute certainty for our passengers and this has led to a strong recovery in forward bookings," he added.

The airline's disputes with three unions are now subject to arbitration by Fair Works Australia, during which no industrial actions can take place.

Joyce also acknowledged that the weak part of the group's business is in its Qantas International operations and that the airline's short-term objective is to bring this unit back to profitability.

This will include working more closely with alliance partners to offer customers a wide range of destinations, connections and frequencies.

Qantas' domestic operations and Jetstar, meanwhile, are both showing strong growths, he said.

Over the next five years, Qantas will also take "major steps" to have a fleet of high flexible next-generation aircraft to drive down operation costs.

The airline has a fleet of 35 Boeing 787s on order.

"As our fleet modernises, we will put in place systems and processes that support the fleet most efficiently across engineering, airports and catering," said Joyce.

The airline, however, also foresees a challenging five years ahead where it expects stiff competition from Middle Eastern and Chinese carriers in the international market and attempts from other carriers to erode its dominance at home.

Last month, Qantas announced that it expects to report an underlying profit of up to Australian dollars (A$) 190 million for the first half of fiscal 2012, despite rising fuel costs and the impact of industrial action.

Source: Air Transport Intelligence news