Edinburgh Trams said rising customer numbers, 99 per cent reliability and top customer service are the basis of the financial boost.
Results published today show revenue grew by 24 per cent in 2017, and the total number of customer journeys was up by 19 per cent to 6.6 million.
The introduction of a new timetable also contributed to the lift said Edinburgh Trams managing director Lea Harrison.
He added: “In 2016 we returned our first operating profit a year ahead of schedule and, in 2017, financial performance has continued to exceed expectations.
“The introduction of a new timetable at the start of the year played a major part in this success, with a 23 per cent increase in services encouraging more people to take the tram when visiting the city for business or pleasure.
“We’ve also worked hard to reduce journey times, with a trip between Edinburgh Airport and the city centre taking less than 35 minutes.”
With customers at the heart of the operation Mr Harrison pointed to initiatives such as the introduction of a contactless payment system and running additional trams as reasons for the financial success.
He added: “This passenger-focussed approach has seen Edinburgh Trams named as Operator of the Year at the prestigious Global Light Rail Awards and receive numerous accolades for excellence in customer service.
“We’re delighted at the support we’ve received from the travelling public, which is reflected in these financial results, and we’ll continue our efforts to further improve the customer experience.”
Edinburgh Trams said the figures reflect the growing popularity of the city’s tramway and massively exceed forecasts in the City Council’s original business model, which predicted a profit of £333,000 for 2017.
Chief executive of transport for Edinburgh, George Lowder, said the results show the tramway as an integral part of the city’s transport network.
“2018 is already showing sound performance and we look forward to a positive political decision at the end of the year around taking trams to Newhaven,” he added.
It comes as Edinburgh Council announced a new design for the proposed extension of the tramline to Newhaven which has been estimated to cost £165.2m.
Cars could be set to share single lanes with trams along part of Leith Walk under blueprints for the next stage of Edinburgh’s tram project.
This option includes just one lane in each direction for all traffic including trams and cars, segregated cycleways and maximised space for pedestrians on each side of the street. There would also be a central verge to be used as a safe crossing point - as well as space for parking and loading on both sides of the road.
Transport convener Cllr Lesley Macinnes, said: “Public transport is going from strength to strength in Edinburgh and today’s annual accounts from both Edinburgh Trams and Lothian Buses are evidence that residents, commuters and visitors continue to value the excellent services both operators provide.
“As a Council, we’re absolutely committed to promoting public transport, alongside walking and cycling, as a cost-effective, safe, convenient and reliable way to get from A to B in the city.
“We look forward to continuing our productive partnership and working relationship with both companies as we work to deliver a sustainable and truly integrated public transport system for Scotland’s Capital.”
Council officials will work up a preferred option into a more detailed design ahead of the next round of consultation on the tramway extension.
Once detailed designs have been finalised, further consultation will be held towards the end of the summer. The final business case will then be presented to the council in November, with the council expected to determine final approval in December.