Australian carrier Qantas's plans to create a premium Asian airline were thrown into disarray Friday after it announced talks with Malaysia Airlines had collapsed.

While Asia remained a priority for Qantas and it wanted to expand in the region, given global economic uncertainty and its focus on financial discipline, the group said it "will allocate minimal capital to such ventures".

"Last year, Qantas announced a five-year plan to address the challenges facing the international business," chief executive Alan Joyce said in a statement announcing the talks had failed.

"The transformation of Qantas's international business remains vital, with plans to return the international business to profitability in the short-term on track."

Qantas revealed plans to establish a joint-venture premium airline in Asia last August as it repositions itself within the industry's fastest-growing region and seeks to turn around its loss-making international arm.

Singapore and Malaysia were seen as the likely bases and it is understood that Qantas had been favouring Kuala Lumpur given it would involve lower costs.

But Qantas said Friday that talks with Malaysia Airlines on a partnership, including the establishment of a new premium airline, "would not continue due to parties being unable to reach mutually agreeable commercial terms".

The news comes just days after Malaysia Airlines admitted it was "in crisis" after posting a 2.52 billion ringgit (US$836 million) loss last year largely due to soaring fuel costs.

"The results make for unpleasant reading. The company is in crisis," Malaysia Airlines chairman Mohamad Nor Mohamad Yusof said, before adding that he was confident it could recover.

It is understood Qantas is not in talks on establishing a tie-up with Singapore Airlines, long a fierce rival of the Australian carrier and whose new long-haul budget carrier Scoot will have a daily flight to Sydney.

Qantas's plans to establish a new Asian airline sparked a fierce backlash from the start, with unions concerned the move would see jobs sent offshore.

The ensuing acrimony between management and unions saw Joyce ground the entire fleet last October, stranding thousands of passengers at airports around the world and digging into the airline's bottom line.

The 48-hour grounding was ultimately ended by the national industrial relations umpire, which forced the disputing parties into arbitration.

Qantas is battling to restructure its business and earlier this year announced it would slash at least 500 jobs, cut costs and close two international routes after an 83 percent slump in first-half net profits.

Its share price was down 4.06 percent at midday Friday at AU$1.655.