(CNN) -- Australian airline Qantas grounded all its aircraft Saturday in response to a labor dispute, in a step that will disrupt travel for thousands of people.
Flights in the air will complete those journeys, the airline said in a statement, but there will be no further domestic or international departures worldwide.
The industrial action involves three unions representing air and ground staff. Qantas, the flag carrier for Australia and its largest domestic and international airline, said that all employees involved in the strike would be locked out from Monday evening.
"Pilots, licensed engineers and baggage, ground and catering staff are essential to Qantas operations and the lock-out will therefore make it necessary for all Qantas aircraft to be grounded," the airline said.
Australian Prime Minister Julia Gillard told reporters the dispute had "escalated in a dramatic way" during the day.
As a result, the government had asked Fair Work Australia -- an independent national workplace relations tribunal -- to terminate the industrial action and resolve the dispute itself, she said. A hearing is taking place Saturday night.
"My message to Qantas, the employees and trade unions is: Australians do want to see this dispute sorted out. Qantas is an iconic Australian brand, it is the employer of thousands of Australians, thousands of people rely on it for their livelihoods and we do need this dispute to be brought to an end," she said.
The move comes at an embarrassing moment for Australia, which is hosting dozens of heads of government and their staff for the Commonwealth Heads of Government Meeting in Perth.
Gillard said government workers would help those whose flights home were booked with Qantas to make alternative plans.
Speaking at a news conference in Sydney, Qantas chief executive Alan Joyce said it was a hard decision to ground the fleet but that the airline had been left with no alternative in the face of the unions' "extreme claim."
Staff involved in the industrial action will be locked-out for as long as it takes, he said, and the unions "will have to decide how badly they want to damage Qantas."
Grounding its fleet will have a daily financial impact of about 20 million Australian dollars ($21.4 million), Qantas said.
Customers booked on Qantas flights should not go to the airport until further notice, the airline said. It will offer travelers full refunds or the chance to rebook.
Flights with subsidiaries Jetstar and QantasLink, as well as Qantas flights across the Tasman Sea operated by Jetconnect and freight services, are not affected by the grounding, it said.
The unions involved in the dispute reacted angrily to Joyce's statement.
Richard Woodward, vice president of the Australian and International Pilots' Union (AIPA), branded it "a maniacal overreaction."
The decision to ground the Qantas fleet, stranding thousands of passengers around the world, was unnecessary and grossly irresponsible, he said in a statement, adding: "Alan Joyce is holding a knife to the nation's throat."
Speaking to CNN, he accused Qantas management of "complete brinkmanship" and said the company's action -- only announced Saturday -- had been planned for months.
The Transport Workers Union of Australia said in on online statement: "Today's unwarranted and disgraceful snap announcement by Qantas CEO Alan Joyce is designed to destroy Qantas as we have always known it."
The union accused Qantas management of "untruths and subterfuge" in its dealings with staff, in a statement earlier this week.
The airline plans to outsource ground jobs, the union says, at a cost of thousands of Australian jobs.
The Australian Licensed Aircraft Engineers union (ALAEA) accused Qantas of lying to the media and putting profits first, in a statement on its website earlier this month.
It said the union's industrial action was aimed at ensuring Qantas "will have less money to set up the overseas operations that will cannibalise Qantas routes and our job security."
Qantas says the weeks-long dispute with staff has already affected more than 70,000 passengers and cost it about 15 million Australian dollars ($16 million) a week in lost revenue.
London's Heathrow airport said only a handful of long-haul Qantas flights had been scheduled to fly Saturday and Sunday, and it had been able to contact passengers to rebook their travel.
Qantas, which has its headquarters in Sydney, is the second oldest airline in the world, having marked the 90th anniversary of its foundation last year.
It employs about 32,500 people and flies to more than 180 destinations worldwide, according to the company website. For the financial year ending June 2010, it made a post-tax profit of 116 million Australian dollars.
CNN's Laura Smith-Spark, Hugh Williams and Elizabeth Joseph contributed to this report.