In a stunning and unexpected move, Qantas Airlines of Australia has grounded all domestic and international flights in response to an ongoing labor strike, stranding thousands of passengers around the world.

Australian Prime Minister Julia Gillard, who has urged both the company and labor unions to settle the dispute immediately, has warned that the work stoppage could have implications for the country’s economy.

I want to see this dispute sorted out, she told a news conference in Perth. Qantas is an iconic Australian brand. The dispute has escalated in a dramatic fashion, and I am concerned about its impact on the national economy.”

Fair Work Australia, the industrial tribunal, adjourned a hearing on the Qantas labor strife on Saturday night (local time) and will re-start negotiations on Sunday. The board has the power to suspend or end labor disputes.

Anthony Albanese, the Australian transport minister, said the government will intervene in the dispute.

We are very concerned about Qantas' actions, of which we were notified only mid-afternoon, with no advance notice from Qantas at any stage, he said in a statement.

The government is making an urgent application to Fair Work Australia to terminate all industrial action at Qantas. This will be aimed at both actions by unions and by Qantas management. I would hope the parties to this dispute act like adults.”

However, Qantas Chief Executive Officer Alan Joyce does not sound like he’s willing to concede anything to the unions.

The airline will be grounded as long as it takes to reach a conclusion on this, he warned.

He emphasized he would not agree to union demands (which asked for, among other things, higher wages), because that would destroy Qantas in the long term.

He added: I'm actually taking the bold decision, an unbelievable decision, a very hard decision, to ground this airline. We are locking out until the unions withdraw their extreme claim and reach an agreement with us. This is the fastest way to ensure the airline gets back in the air. They are trashing our strategy and our brand. They must decide just how badly they want to hurt Qantas, their members ... and the travelling public.

Even before the grounding, many Qantas flights had already been cancelled or suspended due to a massive strike by pilots, engineers and baggage handlers, among others. The company said it is losing $16 million every week due to the industrial action.

The labor dispute erupted in August when Qantas announced plans to restructure the company to focus more on the high-growth Asian market. Labor unions warned that such measures would eliminate 1,000 jobs in Australia (out of a total workforce of 35,000).

While Qantas controls about 65 percent of the domestic air travel market, its international operations have been losing $200 million (Aust.) annually.

BBC’s correspondent in Sydney, Phil Mercer, wrote: “At the heart of the dispute are concerns about pay and job security along with cost-cutting and the subcontracting of work overseas as Qantas looks to set up new airlines in Asia and sack hundreds of staff to revive its sagging international fortunes.”

Mercer added: “Qantas' decision to pull its entire international and domestic fleets from the skies comes during one of Australia's busiest travel weekends, with tens thousands of people converging on the hugely popular Melbourne Cup horse race, an event that stops the nation for a few, brief minutes.”

Australian pilots are outraged and flabbergasted by Qantas’ decision.

It's unprecedented and really it has hijacked the nation. It really has put everyone on notice and ... it's forcing the government's hand on this, Barry Jackson, of the Australian and International Pilots Association (AIPA), told Sky News.

We really need to address this sooner rather than later and get the aircraft back in the air.

Others were even harsher in their condemnation.

I think it is a pre-planned union-busting move, said Captain Richard Woodward, the vice-president of AIPA. Alan Joyce is holding a knife to the nation's throat. No one predicted this, because no one thought Alan Joyce was completely mad. This is a stunning overreaction. It is straight-up blackmail. I knew he was trying to kill Qantas, but I didn't know he wanted to do it this quickly. This is a grave and serious situation and the board should move to sack Mr. Joyce immediately. This is the saddest day of my 25 years with Qantas.

Woodward added: Mr. Joyce is stranding thousands of Qantas passengers all across the globe so he can engage in his mad game of one-upmanship. All so he can pursue his delusion that Qantas should be an Asian airline, instead of an Australian one. We believe this action is unlawful and we are currently seeking legal advice. He has [even] locked out short-haul 737 pilots who aren't even involved in any action at all. Let's be clear about this: Mr. Joyce would have planned to strand thousands of Qantas passengers all across the globe months ago. To ground your entire fleet, when doing so is completely unnecessary, is not the act of a sane and reasonable person. He has snatched his ill-deserved millions on Friday and grounded the airline on Saturday. It's just tragic and unnecessary.

The Transport Workers Union (TWU), which represents many of the strikers, has questioned the legality of the decision to ground the entire airline.

This is a preconceived, preplanned attempt to hoodwink the shareholders, hoodwink the Australian community. Now it's trying to hoodwink the company's work force, said Tony Sheldon, the national secretary of the TWU.

Geoffrey Thomas, an aviation writer at the West Australian newspaper, told Australian media: It is an amazing turn of events, although I don't believe the airline really had any choice but to take the action it has, because what the unions are demanding, [Qantas management] simply can't deliver.”