Australia's Qantas Airways grounded its entire fleet Saturday over a labour dispute, prompting the government to ask a tribunal to stop the conflict out of concern it is putting both the airline and the economy at risk.

Tens of thousands of passengers and almost 20 world leaders were affected by the unprecedented decision, which came a day after a stormy shareholder meeting and clearly took the government by surprise.

It 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 Sunday with Qantas.

Unions, from pilots to caterers, have taken strike action since September over pay and to oppose 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 makeover to salvage the loss-making international business.

They are trashing our strategy and our brand. They are deliberately destabilising 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 Joyce, who estimated the latest move would cost the airline A$20 million a day.

The dispute is the worst involving Qantas since 2008, when industrial action by engineers cost it A$130 million (£86.25 million), local media reported.

Qantas' action sparked an angry response from Australia's Transport Minister Anthony Albanese.

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.

The government asked for a special labour tribunal hearing to end the industrial action by both unions and Qantas. A late night hearing was adjourned until later Sunday.

If it orders an end to the industrial action, Qantas is expected to start flying again.

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.

Executives faced angry investors and staff at a shareholder meeting Friday where the company said the labour dispute had caused a dive in forward bookings. The shareholders backed hefty pay rises to senior Qantas executives.

Australian aviation analyst Tom Ballantyne told ABC Television that Qantas' decision to ground the fleet was partially designed to get the government involved.

The airline will be irretrievably damaged if it goes on for more than a month, he said.

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. Qantas' budget airline Jetstar is not affected.

STRANDED

Qantas is a member of the OneWorld airline alliance, which includes Cathay Pacific, American Airlines, British Airways Plc, Finnair, Iberia, Japan Airlines, LAN, Malev, Mexicana, Royal Jordanian and S7 Air.

Alliance members often use partners' routes and flights to shore up their own networks. Cathay warned its own passengers of potential disruptions on Qantas connections.

The airline's decision left many flyers venting their anger.

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.

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.

At London's Heathrow Airport, passengers stood in long queues looking up at departure boards showing cancelled flights.

(I'm) not very happy because it was the holiday of a lifetime for us and it cost us a lot of money, British passenger Steve Johnson said.

Adding to travellers' problems, Air France cancelled one in five flights and warned of wider disruption at the start of a five-day strike by cabin crew. [ID:nL5E7LT02B]

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 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.

The shutdown took pilots and controllers by surprise.

A Qantas jet on the taxiway at Sydney was minutes away from departing for Melbourne when its pilot was ordered to radio his airline. After doing so, he asked to return to the terminal.

Contact ground (control) ... and I'll see you on the next one, the tower controller said.

Your guess is good as mine when I'll talk to you again, the pilot replied, according to recordings at liveatc.net.

A pilot from Virgin Australia asked the tower: Have I missed something? and was told you might get a bit busy.

Virgin Australia is one of the rivals seen likely to benefit from an extended grounding along with Singapore Airlines, British Airways and Chinese firms.

Virgin Australia said it would accommodate Qantas passengers where possible and was looking at adding more services.

(Additional reporting by Rebekah Kebede in Perth, Ed Davies in Sydney, James Grubel in Canberra, Kevin Lim in Singapore, Tim Hepher in Paris, Writing by Jonathan Thatcher, Editing by Michael Perry and Alison Williams)