Qantas said Monday the dispute that triggered a shock grounding of its fleet cost AU$194 million (US$190 million) amid reports it is poised to shelve plans for a joint-venture premium airline in Asia.

The Australian flag carrier said it expects to post an underlying net profit of AU$140-AU$190 million in the first half of the financial year to December 31, 2011, from AU$417 million a year earlier.

The slump is largely due to high fuel bills, a series of strikes and the grounding of its entire fleet for nearly two days last month during a bitter dispute with unions over wages and conditions.

The profit drop was not a surprise and Qantas's share price, which has been trading near all-time lows, rallied 3.44 percent to AU$1.505 in a rising market.

Chief executive Alan Joyce said the airline had lost AU$68 million as a result of industrial action before he decided to take all planes out of the skies.

The cost of the grounding itself, including lost revenues, refunds and accommodation for thousands of stranded passengers, came in at AU$70 million.

There was also a AU$27 million hit related to forward bookings and a AU$29 million cost as a result of "customer recovery initiatives".

The government called on the industrial relations umpire, Fair Work Australia, to step in to end the standoff with unions representing pilots, engineers and ground staff.

But with the parties unable to resolve their disagreements the dispute is now heading to arbitration.

Joyce said customers had started to return to the airline.

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

But he added that the outlook for the second half of the financial year remained volatile given the uncertainty in global economic conditions, volatile fuel prices and fluctuating foreign exchange rates.

It is this uncertainty that is likely to force Qantas to shelve plans for a new premium airline based in Asia, the Australian Financial Review reported.

The announcement in August of Qantas's decision to refocus on Asia was part of what sparked the fierce backlash from unions, who are concerned at the possible outsourcing of jobs.

The report said that despite intense planning for the capital-intensive project based in either Kuala Lumpur or Singapore, executives had now decided to focus on a lower-risk alliance with Malaysia Airlines.

Joyce said no final decision had been made.

"We obviously keep all of our options open," he told ABC radio.

"We believe that a new premium airline in Asia is important for us.

"The timing of that airline and how it works with partners is still part of the discussions we're having with both Singapore and Malaysia and no final decision has been made on what we are going to do."

The newspaper said Qantas and the Malaysian airline were working towards a letter of intent for a new partnership. That would include a code-sharing alliance which is expected to allow joint marketing, scheduling and pricing.

The newspaper added that talks with the Singapore government would cease, with the Malaysia Airlines hook-up mirroring Qantas's relationship with British Airways.

As part of the deal, Qantas would likely recommence flights to Kuala Lumpur and gradually shift its central Asian hub to Malaysia from Singapore.

Partner British Airways would also reorient its focus in the region to the Malaysian capital, the report said.

The Australian and International Pilots Association welcomed news that Qantas's Asian offshoot may not go ahead.

"Thankfully, this potentially disastrous plan seems to have collapsed before fatal damage could be done to the Qantas brand and the Qantas business," said the union's vice president Richard Woodward.