Air California originated in a December 1965 meeting in Corona del Mar by William Myers, Alan H. Kenison (later a founder of Jet America Airlines), Mark T. Gates, Jr., William L. Pereira, Jr. (son of noted architect William Pereira who designed the Theme Building at Los Angeles International Airport (LAX)[5]) and Lud Renick to discuss air service from Orange County to San Francisco, with the idea of Air California as the result.

[6][7] At the time, all significant US airlines but one were tightly regulated by the Civil Aeronautics Board (CAB), an agency of the Federal government.

[9] In December, Air California had an initial public offering and the airline launched its first services January 16, 1967, using two Lockheed Electra aircraft.

[17] In June 1970, WCC acquired 60% of the carrier, which was approved by the CPUC on the grounds that Air California's future was in doubt.

[19] In April 1971, Air California provided flight attendant training to Southwest Airlines during its startup phase.

[23] Smith was highly controversial, accused of lining the pockets of his family and friends through self-dealing (including with WCC, USNB and others) of making illegal campaign contributions, and more.

First-class ("Fiesta") service and Palm Springs made their debut in 1969, San Diego in 1970, though Burbank was suspended.

[29] In February 1973 the CPUC agreed, against heavy opposition, including from its own legal staff,[30] to allow the merger to proceed.

[39] Therefore, from 1974 until it was sold in 1981, Air California was in the odd situation of being owned by a bankrupt company run by trustees rather than conventional management.

So long as they followed CPUC tariffs, anyone was free to start an intrastate California airline, to enter and leave specific markets and to choose their own frequencies.

Air California was unprofitable for the first five years (though it broke even on an operating basis in 1970; see table) and CPUC regulation was critical to its survival.

In 1969 the CPUC said "From the beginning we have recognized the need to protect Air California from destructive competition, at least until it becomes a viable operator.

This left Air California free to concentrate its energies on competing with CAB carriers on its routes, which had higher costs.

(ii) The CPUC approved higher airfares for Air California than for PSA was authorized on similar routes.

(iv) in at least one case, the CPUC restrained PSA growth with the explicit goal of helping Air California.

[42] In fact, from 1965 onward, the CPUC certified only one other carrier, Holiday Airlines, which for some reason chose to fly only to Lake Tahoe.

[43] Since its parent company was mired in bankruptcy, it was timely that Air California's fortunes took a turn for the better, becoming solidly profitable from 1973 onward.

[55] This was AirCal Investments, a vehicle for two Orange County real estate developers, William Lyon and George Argyros.

He had been angered by the surprise bid by Air Florida to buy WCC, had in fact put Argyros and Lyon together in the first place, when each had separately inquired.

[56] Headwinds included the debt the two had taken on to buy AirCal, the early 1980s recession, the extended impact of the August air traffic controller’s strike, which limited airline aircraft utilization and growth and the expanding impact of 1979 airline deregulation, which spread competitors into AirCal markets, and vice versa.

AirCal was also substantially recapitalized, with the combination of an initial public offering with Lyon & Argyros converting debt they’d loaned the airline into equity.

Building a west coast presence from scratch at the same time was considered a bridge too far for American, so it bought rather than built.

In April 1967, Air California was operating 48 nonstop Lockheed L-188 Electra propjet flights a week from Orange County (SNA) to San Francisco (SFO).

It added Orange County (SNA) to San Jose (SJC) and Oakland (OAK) flights around the beginning of 1968.

State legislators were increasingly irate, finally proposing a raft of bills to punish the carriers, even suggesting a state-owned airline.

[91] More to the point, Southwest Airlines had announced it was entering Burbank with 10 a day service to Oakland at a last-minute fare of $59 one way, $29 in advance.

[92] The resulting Los Angeles Basin to San Francisco Bay fare war was brutal, made worse when Iraq invaded Kuwait thereby spiking oil prices, collapsing demand for international travel and tipping the US into the Gulf War.

In January 1991, in announcements only two weeks apart, American and then US Air gutted the former AirCal and PSA systems, throwing in the towel less than five years after offering to buy the former intrastate airlines.

In fact, there's a good case to be made that Air California only survived to be sold to Lyon & Argyros because of regulation.

[98] AirCal's May 1, 1987, system timetable listed the following destinations shortly before it was merged into American Airlines:[47] Air California/AirCal previously served these destinations during its existence: As of July 1, 1987, at the time of the merger, AirCal's fleet consisted of the following aircraft:[citation needed] Air California/AirCal previously operated the following aircraft: