Australian airline Qantas' decision to shut down all flights as it fights an industrial dispute with employees will be catastrophic for the nation's tourism sector, industry bodies said on Saturday.

Already battling to overcome damage caused by devastating floods, global financial uncertainty and a soaring Australian dollar, the industry could ill afford another blow, the chief of the Tourism and Transport Forum said.

"Enough is enough," chief executive John Lee said.

"This will have an immediate and potentially catastrophic impact on tourism operators and will threaten the viability of tourism businesses across the country. This issue must be resolved urgently."

Qantas made the shock decision Saturday to ground its entire fleet indefinitely as it battles three unions covering long-haul pilots, engineers and baggage, catering and ground staff.

Tourism Accommodation Australia managing director Rodger Powell called the developments an "absolute disaster" for the hotel sector.

"There's undoubtedly immediate concern in terms of the impact of travelling customers, but I think the bigger concern is the longer term impact on the Australian tourism brand, both overseas and at home," he said.

"The tourism industry has just had one setback after another over the past 12 months, between fires, floods, cyclones and the high Australian dollar."

The Tourism Industry Council New South Wales echoed the concerns.

"Our industry will be massively impacted by this decision," chief executive Andrew Jefferies said.

"This will flow through to the hotels, restaurants, attractions and transport operators."

Prime Minister Julia Gillard said she would use the national interest provision available to her to ensure arbitration begins as soon as possible to resolve the crisis.

Rolling strikes had already affected tourism, reduced consumer confidence and made people less likely to travel, Lee added.

"While some people have deferred their travel plans, others have decided it's too difficult, and we are already seeing a drop off in forward bookings which will now only get worse," he said.

The 500,000 people directly employed in Australia's tourism industry do not deserve to have their livelihoods threatened by this, he added.

The Qantas dispute comes as Gillard is hosting a Commonwealth Heads of Government Meeting in the remote western city of Perth, an event which has brought 6,000 visitors to the state.

Officials in Perth said members of 17 Commonwealth delegations were booked on Qantas flights and were now stranded in the remote city by the airline's decision.

AFP