You could just make the number/letter designation historical like il2. Then allow ramzeys example.
Then have the icons represent the markings as well
My squad 4./JG 53. thats 4 staffel 2nd Gruppen. So say I was number 7. 7 would be white so would the Gruppen mark -
Example
The icons would stay 2 colors like it it is now but The icon would read.
The Enemy icon would just be plane type or maybe a combination of plane type like we have now and then the designation say inside d1k.
friendly icons could be as follows:
WH (for white) 7 (plane number) + (country) - (gruppen) =
WH 7 + -
No range indicator, the color fades in to a darker color the closer you are. So at d6k its very light at d3k its darker but still transparent inside d1k its at it darkest color.
For AH2:ToD you could link the designations to the mission. So when you choose a mission slot you are given a designation.
Changing a few colors, or adding personalized designations or kill markings will never really be seen out side a few screenshots. But if we would want meaningfull personal designations I think it would be best to stick to something historical and not a bunch clown planes flying around. With the icon system I described folks could actually see your squad flying together.