CANBERRA, AUSTRALIA - AUSTRALIA'S Qantas Airways cancelled six flights on Monday and said it may employ strike-breakers after engineers began a two-day strike, escalating a long-running pay dispute.

Members of the Australian Licensed Aircraft Engineers Association (ALAEA) walked off the job in three states, disrupting flights in Sydney, Melbourne and Cairns, over Qantas's refusal to grant a 5 per cent wage rise for 1,500 engineers. The airline is offering 3 per cent.

'I don't think that there is a settlement at hand here,' Qantas Executive General Manager for People Kevin Brown said.

'Each time we go to meet the ALAEA they put on strike action, and we've been very clear about this, we're not going to meet with a gun to our head,' Mr Brown said.

Qantas is at the sharp end of a problem facing many Australian firms: with inflation running at just over 4 per cent, workers are demanding bigger pay rises at a time when consumer demand is cooling and employers are looking to cut costs.

It also has to contend with soaring fuel costs.

The carrier said another 18 flights would be cancelled on Tuesday as the dispute continued. Up to 500 engineers were expected to join the dispute.

Mr Brown said both sides were still a long way apart in negotiations and the airline could employ contract engineers.

Qantas had a 'whole range of contingencies' to deal with the disruption, he said.

Union Federal Secretary Steve Purvinas said Qantas had shown no flexibility in 40 meetings to resolve the dispute.

The latest strike follows a two-day stoppage last month that grounded 17 Qantas flights and forced the airline to delay several others.

To bring down costs, Qantas has announced executive wage freezes, job cuts and a reduction in services to Japan. -- REUTERS