Qantas Airways and its unions appeared before a labour tribunal on Sunday with Australia's prime minister urging an end to the industrial dispute that grounded the airline's entire fleet, stranding tens of thousands of passengers.

Qantas said it had cancelled 447 flights affecting more than 68,000 passengers since grounding over 100 aircraft around the world on Saturday.

The airline is seeking to bring to a head a prolonged and increasingly bitter battle with its unions over pay, working conditions and plans to set up two new airlines in Asia.

Qantas plans to cut 1,000 jobs and order $9 billion (5 billion pounds) of new Airbus aircraft as part of a makeover to salvage its loss-making international business.

The abrupt escalation in the dispute angered the government and came as an embarrassment for Prime Minister Julia Gillard, who was hosting a summit of Commonwealth leaders in the western city of Perth, 17 of them booked to fly out on Sunday with Qantas.

There is no case for this radical overreaction, Assistant Treasurer and former senior union official Bill Shorten told the Australia Broadcasting Corp.

Sixty-eight thousand Australians and the tourism industry has been grossly inconvenienced by this high-handed ambush of the passenger.

Gillard, criticised for not intervening earlier in the dispute, said the tribunal hearing in Melbourne was needed to quickly resolve the impasse.

We took this action because we were concerned about the damage to the economy, she told reporters in Perth.

The government is arguing for an end to the industrial action, she said, adding that most leaders had made alternate flight plans.

BOLD, UNBELIEVABLE DECISION

Qantas chief executive Alan Joyce estimated the bold decision, an unbelievable decision to lock out workers and ground the fleet would cost the company A$20 million (13.3 million pounds) a day.

He said the special labour tribunal, which reconvened after a late-night meeting on Saturday, would have to terminate all industrial action before the airline could resume flying.

We're hoping a determination is made today and that will give us certainty about what we can do and start planning to get the airline back in the air, Joyce told Australia's Sky News.

He indicated Qantas could be flying again on Monday if the Fair Work Australia tribunal ordered the termination of industrial action on Sunday.

Qantas and the unions would then have 21 days to negotiate a settlement before binding arbitration would be imposed.

The lockout is the latest in a rising tide of industrial unrest in Australia as unions increase pressure for a greater share of profits amid tight labour markets and a boom in resource prices.

It threatens to become the most significant disruption to Australian aviation since a dispute in 1989 that lasted for six months and had a significant impact on tourism and other business. Industrial action by engineers cost Qantas around A$130 million in 2008.

Qantas faced angry shareholders and workers at a shareholders' meeting on Friday when the company said the labour dispute since September had caused a dive in forward bookings and was costing it A$15 million a week.

The shareholders backed hefty pay rises to senior Qantas executives, including a A$5 million package for Joyce.

The action sparked an angry response from Australia's Transport Minister Anthony Albanese on Saturday.

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, he said.

Tony Sheldon of the Transport Workers Union said the lockout was cynical and pre-planned.

It's a company strategy that shareholders should have been told about, that the Australian community should have been told about, not ambushed in the dead of night, he said.

The Australian and International Pilots Association (AIPA) was flabbergasted at the move to ground the fleet, describing it as brinkmanship in the extreme.

Alan Joyce is holding a knife to the nation's throat, said Richard Woodward, vice-president of AIPA.

MASSIVE DISRUPTIONS

Qantas check-in desks across Australia were empty on Sunday morning as customers scrambled for alternative travel arrangements. The airline usually flies more than 60,000 people a day.

Australian rival Virgin Blue said it was adding an extra 3,000 seats on its domestic network on Sunday to assist Qantas passengers.

Qantas's decision left many passengers venting their anger after they were stranded in 22 cities around the globe.

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 gave his name only as Barry, told Sky TV at Melbourne airport.

This weekend is one of Australia's busiest for travel, with tens of thousands travelling to the hugely popular Melbourne Cup horse race on Tuesday, dubbed the race that stops the nation.

Shares in the airline have fallen almost 40 percent this year, underperforming the 8 percent fall in the benchmark index.

($1 = 0.933 Australian Dollars)

(Additional reporting by Narayanan Somasundaram and Ed Davies in SYDNEY, Rebekah Kebede and Michael Perry in PERTH, James Grubel in CANBERRA; Writing by Lincoln Feast; Editing by Jonathan Thatcher)