Australia's Qantas Airways said on Monday that talks on setting up a premium airline in Asia were continuing, while domestic bookings have recovered back to normal levels after months of industrial disputes.

Chief Executive Alan Joyce, who grounded the airline in late October over a dispute with unions, told investors that Qantas will continue its focus on cutting costs and lifting productivity because competitive pressures from Middle Eastern and Chinese carriers will increase.

We have announced our plans to invest in a premium airline based in Asia. Talks continue, and it remains premature to make any announcements at this stage, Joyce said at the airline's strategy day.

There have been media reports that the Asian premium airline, seen as key to turning around the loss-making international operations, was going to be dropped.

Qantas has previously said that it has held talks with Malaysian Airlines and Air Asia , and also with Singapore over its plans for a base in Asia.

Qantas took the drastic step of grounding all flights for two days in late October, disrupting 70,000 passengers and spurring the government and the labour-market umpire to seek a quick end to hostilities between the airline and three unions.

Joyce said sending the dispute for arbitration by the labour umpire Fair Work Australia had given certainty to passengers and led to a strong recovery in forward bookings.

Domestic bookings, including from corporate accounts, have recovered particularly well and are now back to normal levels, he said.

International bookings were recovering at a slower rate for the period through to January, but beyond January were in line with levels before the industrial action, he said.

Joyce said Qantas was confident the Fair Work outcome would be reasonable and exclude the extreme claims that would have threatened our capacity to make the necessary transformation of our international business.

(Reporting by Lincoln Feast and Victoria Thieberger; Editing by Ed Davies)