Qantas flights will be grounded for at least another day after an emergency hearing of the industrial umpire failed to resolve the dispute.
Fair Work Australia (FWA) will resume hearings in Melbourne at 2pm (AEDT), where both Qantas and the federal government have asked for the industrial action to be terminated.
Unions, however, are seeking only a 90-day suspension of the action so they can continue negoitions with the airline on pay and conditions.
The federal government asked for the hearing following Qantas' shock announcement on Saturday to immediately and indefinitely ground it domestic and international flights and lock out engineers, pilots and other employees, beginning on Monday night.
The airline's action comes as a result of a long-running industrial impasse between Qantas and three unions: the Australian and International Pilots Association (AIPA), the Transport Workers Union (TWU) and the Australian Licensed Aircraft Engineers Association (ALAEA).
Qantas CEO Alan Joyce announced at the airline's AGM on Friday that the industrial action over the past two months had cost the airline $68 million and affected about 71,000 passengers.
Prime Minister Julia Gillard, who is in Perth for the Commonwealth Heads of Government Meeting (CHOGM), told reporters the decision to go to FWA was based on the impact on the Australian economy.
"I believe it is warranted in the circumstances we now face with Qantas ... circumstances with this industrial dispute that could have implications for our national economy," she told reporters yesterday.
A lawyer for the federal government told the FWA hearing that Qantas' actions on Saturday and the protracted industrial action were "likely to cause significant damage to the Australian economy, particularly the aviation and tourism industries".
Qantas' lawyer supported the termination of the industrial action, saying damage to the airline would continue if the industrial action was only suspended.
The section of the workplace laws being used by the government deals with disputes that could cause significant economic damage.
Commonwealth Secretary for the Department of Infrastructure and Transport Mike Mrdak (Mrdak) told the hearing that with Qantas grounded other airlines would struggle to fill the void.
"What we face today is half of the domestic capacity now grounded," he said.
"All the airlines have indicated their loads are very high - there is no capacity in coming days in the absence of Qantas flying."
The Commonwealth secretary for the Department of Resources, Energy and Tourism Drew Clarke told the hearing the potential damage of grounding Qantas for more than 24 hours was comparable to a flood and cyclone for the tourism industry.
"My view is that we have a very limited window of opportunity to address the damage that's being done to brand Australia," he said.
If the application is granted the unions and Qantas will have at least 21 days to come to an agreement and no industrial action can take place during this period.
Mr Joyce told reporters earlier on Saturday the grounding was the only effective way to end the dispute.
"They are trashing our strategy and our brand," he said.
"They are deliberately destabilising the company and there is no end in sight."
AIPA Vice President Richard Woodward said he believed Mr Joyce had been planning the move for several months.
"I think it's a pre-planned union-busting move," he told the ABC.
"It's an over-reaction by Alan Joyce in the extreme. In fact it's bordering on the maniacal to do this."
Australian Workers Union boss Paul Howes said that at no stage did the airline seek government intervention or use a range of provisions under the Fair Work Act that could have delivered an earlier end to the dispute.
"Make no mistake: this is an ambush on the Australian people," he said.
Opposition Leader Tony Abbott criticised the government for not becoming involved in the dispute before now.
"The important thing is that the planes get back into the sky and the government needs to use the powers available to it to make that happen as soon as they can," he told reporters.
The Qantas grounding left 17 world leaders scrambling to find other ways home from CHOGM.
Jetstar, QantasLink and Jet Connect are not affected by the Qantas action.
Qantas says passengers will be fully refunded and can also change the date of their flight.
Rival airline Virgin Australia says it has brought in extra staff and planes to accommodate Qantas' stranded passengers all over the world.
National Secretary of the ACTU Tom Lyons told media after the hearing that documents presented to FWA revealed that senior management at Qantas were aware of plans to ground the airline 10 days ago.
"It was a deliberate strategy to cause damage to the Australian economy, to cause damage to Qantas customers and cause damage to Qantas workers," he said.
"What they come here to Fair Work Australia and then try to claim is 'we're hurting ourselves, somebody help us'. It's a ridiculous position."