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Qantas Airways flight QF31, an Airbus A380 bound for Singapore and London, takes off from Sydney airport in this Nov. 27, 2010 file photo. Qantas Qantas Airways said on Oct. 29, 2011, it was grounding all aircraft over a labour dispute and the move would cost it $20 million Australian ($21.4-million U.S.) a day. REUTERS/Tim Wimborne/Files (Tim Wimborne/Reuters/Tim Wimborne/Reuters)
Qantas Airways flight QF31, an Airbus A380 bound for Singapore and London, takes off from Sydney airport in this Nov. 27, 2010 file photo. Qantas Qantas Airways said on Oct. 29, 2011, it was grounding all aircraft over a labour dispute and the move would cost it $20 million Australian ($21.4-million U.S.) a day. REUTERS/Tim Wimborne/Files (Tim Wimborne/Reuters/Tim Wimborne/Reuters)

Qantas airline fleet grounded over labour dispute Add to ...

Australia’s Qantas Airways grounded its entire fleet on Saturday over a bitter labour dispute in an unprecedented move, with the government asking a tribunal to stop the conflict which it worries is putting both the airline and the economy at risk.

Tens of thousands of passengers, including 17 world leaders, were affected by the abrupt decision, which clearly took the government by surprise.

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The Australian government called for an emergency arbitration hearing, which was adjourned early Sunday morning after hearing evidence from the unions and airline. It will resume Sunday afternoon when the government will argue that the airline be ordered to fly in Australia's economic interests.

It came as an embarrassment for Prime Minister Julia Gillard who was hosting a Commonwealth leaders summit in the remote city of Perth, 17 of them booked to fly out on Sunday with Qantas.

Unions, from pilots to caterers, have taken strike action since September over pay and opposing Qantas plans to cut its soaring costs, as it looks at setting up two new airlines in Asia and cutting back financially draining long-haul flights.

It plans to cut 1,000 jobs and order $9 billion of new Airbus aircraft as part of a make over to salvage the loss making international business.

“They are trashing our strategy and our brand. They are deliberately destabilizing the company. Customers are now fleeing from us,” Qantas Chief Executive Alan Joyce said.

“(The unions) are sticking by impossible claims that are not just to do with pay, but also to do with unions trying to dictate how we run our business,” said Mr. Joyce, who estimated the latest move would cost the airline about $21 million a day.

The move came a day after shareholders backed hefty pay rises to senior Qantas executives.

“It (the grounding) is partially designed to get the government involved,” Australian aviation analyst Tom Ballantyne said on ABC Television. “The airline will be irretrievably damaged if it goes on for more than a month.”

Ms. Gillard said the escalating dispute could hit the economy. “I believe Australians want to see this sorted out.”

Qantas said it would lock out all employees from Monday night in the dispute which has affected 70,000 passengers and 600 flights on one of the country’s biggest travel weekends. The grounding does not affect Qantas’ budget airline Jetstar.

“To resolve this at the expense of paying customers on one of the biggest flying days in Australia is quite frankly...bizarre, unwarranted and unfair to the loyal customers that Australia has,” a businessman, who only gave his name as Barry, told Sky TV at Melbourne airport after he was stranded.

Qantas’ Facebook page was inundated with angry passengers. “Stranded in Sydney Airport...because QANTAS are useless idiots, wrote Lyn Haddon.

Zoe Johnson, an Australian living in Switzerland, said: “I’m proudly Australian but it just leaves a really bad taste in your mouth. So many people say, ‘I’m never going to fly Qantas again,’ and from my point of view its just feels like a kind of bullying tactic really.”

Adding to travellers’ problems, Air France has cancelled about one in five flights and warned of wider disruption as a five-day strike by flight attendants over employment terms began on Saturday.

The dispute is the worst Qantas has faced since 2008, when industrial action by engineers cost it $138 million, according to local media.

“I’m extremely disappointed. What’s more, I indicated very clearly to Mr. Joyce that I was disturbed by the fact that we’ve had a number of discussions and at no stage has Mr. Joyce indicated to me that this was an action under consideration,” said Transport Minister Anthony Albanese.

The government had asked for a special labour tribunal hearing to end the industrial action by both unions and Qantas.

The tribunal will hold a hearing on Saturday night. If it orders an end to the industrial action Qantas is expected to be flying again on Sunday.

“The Qantas dispute escalated today and I am concerned about that for the national economy ... it could have implications for our national economy,” Gillard told reporters.

Qantas’ decision to halt flights comes during one of Australia’s busiest travel weekends, with tens of thousands travelling to the hugely popular Melbourne Cup horse race on Tuesday, dubbed “the race that stops the nation”.

Many passengers were stranded on aircraft waiting to take off on Saturday when the grounding announcement was made.

“Alan Joyce is holding a knife to the nation’s throat,” said Captain Richard Woodward, vice-president of the Australian and International Pilots Association.

An extended grounding would benefit domestic rival Virgin Australia and others such as Singapore Airlines , British Airways and Chinese carriers on international routes.

Virgin Australia said it would accommodate Qantas passengers where possible and was looking at adding more services in response to Qantas grounding its fleet over labour dispute.

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