THE CANADIAN PRESS -- MISSISSAUGA, Ont. - Ottawa says the economy is too weak to withstand a prolonged strike by Air Canada employees and is paving the way for back-to-work legislation, even though the first day of the walkout produced no major disruption at Canadian airports.

The federal government served formal notice it could table legislation within 48 hours ordering the striking employees back to work if the two sides don't reach a deal.

"Air Canada has a huge section of the market in Canada in terms of travel," Finance Minister Jim Flaherty said Tuesday in Ottawa. "It affects tourists, of course, but it affects the business, it affects the delivery of cargo in Canada and from Canada abroad. So this is a matter of significant economic consequence."

Under the notice, the government can table back-to-work legislation in as little as 48 hours. It can also delay it longer or not table legislation at all.

Some 3,800 customer service agents and other staff went on strike just after midnight ET after talks between their union and Air Canada (TSX:AC.B) failed to reach an agreement. Pension and wages have been the major stumbling blocks in the talks, which were continuing Tuesday.

Managers have stepped in to replace the striking workers and aside from slightly longer lineups and some minor delays, it was business as usual at Canada's major airports.

But Labour Minister Lisa Raitt said that will change if the strike drags on.

"Air Canada flies a lot of passengers around the country and you are going to start seeing longer lineups," she said.

At Toronto's Pearson International Airport, managers assisted travellers and guided them toward self-serve kiosks. During the morning's peak travel time, people lined up five deep at the kiosks to check in.

Some passengers complained about congestion at the terminals, though most said they noticed little difference.

But striking members of the Canadian Auto Workers union said things weren't running so smoothly behind the scenes and they expect wait times will only get longer as the work stoppage continues.

"It looks good right now," said Dawn Moreau, one of hundreds of Air Canada workers who picketed outside Toronto's Pearson airport, waving banners and chanting for the airline to stop demanding concessions. "Is it going to stay this way? No.

"We're on Tuesday morning, it's probably the slowest morning of the week," said Moreau, an Air Canada customer service agent for 34 years. "You get into your afternoon shifts, you get into your evening shifts, you get into snowball effects down the line."

Anna Shier, 35, of Ingersoll, Ont., arrived three hours early for her flight to Edmonton in case there were any delays at the airport. She found the line moving quickly, "but this is just the beginning, I think maybe as it gets longer into it, it might (cause delays)."

Air Canada said some flights were pre-emptively cancelled to ease congestion.

"We have certain delays, cancellations , but not in the numbers larger than a typical summer day," Isabelle Arthur, a spokeswoman for Air Canada, said.

But union negotiator Marcel Rondeau accused the airline of having its "rosy glasses on," saying that by his tally, up to 25 per cent of flights have been cancelled and roughly half experienced delays at airports.

"We have a completely different picture than what they're saying," he said.

Striking workers protested loudly outside Pearson and Trudeau airports, but did not impede access to the terminals. Pilots and flight attendants at Montreal's Pierre Elliott Trudeau International Airport seemed reluctant to cross picket lines this morning, and Arthur said Air Canada had to escort them, delaying some departures.

There were no major disruptions in Atlantic Canada, where airport operations ran as usual, the airline said.

The CAW said negotiations went down to the wire but there was no common ground on the key issues of pensions and wages.
"The whole bargaining committee is disappointed because I can tell you our objective was not to have a strike, our objective was to have a deal," union president Ken Lewenza told The Canadian Press.

Lewenza said he was particularly frustrated because discussions seemed to progress positively through Monday in the run up to the strike deadline, but the airline's position on the employee pension plan proved too much of a barrier for the union.

"For them to stick to their position after considerable debate is surprising and disappointing," he said. "I don't think Air Canada put the customers front and centre on this particular dispute."

After the deadline passed, Air Canada chief operating officer Duncan Dee said in a release the airline is "very disappointed that an agreement for a new contract has not been reached."

Raitt would not say how much time they will give the two sides to reach an agreement, but she made clear the government won't wait long.

"I'm encouraging the parties to go back to the table and discuss it with each other now that they know there's a finite amount of time," she said. "We wanted to show what our intent was and the notice period starts."

NDP Leader Jack Layton said he would prefer if the two sides worked out their differences.

"We'd much rather see a negotiated settlement," he said. "We would like the government to bringing the sides together, it would be much preferable than back-to-work legislation."

The government move comes as a strike by Canada Post workers approaches a second week. But Raitt said getting the Air Canada employees back to work is a higher priority because the strike is affecting more people than the current Canada Post rotating stoppages, and is much more important to economic activity.

The airline urged passengers to check its website because a high volume of calls could make for a long wait to get through to its call centres, which are largely operated by employees who have now walked off the job.

Technology is also expected to help since self-service tools on the website can be used for making bookings along with self-service check-in at airports.

Despite the airline's contingency plans however, Federal Labour Minister Lisa Raitt has said she's concerned about the potential impact of a work stoppage on Canadians and on Canada's economic recovery.

Meanwhile, Lewenza said the union would continue to reach out to Air Canada to try to come to an agreement both sides were happy with.

"We want a deal," he said, adding that striking employees would be back at their post as soon as an acceptable agreement was reached. "We have a responsibility to push for an agreement because it's in the interests of our members of course, but more importantly it's in the interests of the customers who need the services of Air Canada."