Shares of Norwegian Cruise Line Holdings (NYSE:NCLH) plummeted 23% on Tuesday after the company owned up to its financial shortcomings. It's adding new language to its filings, explaining that the liquidity challenges over the next year are raising "substantial doubt" about the cruise line operator's ability to continue as a "going concern."

This is the kind of scary boilerplate language that precedes a bankruptcy filing if a company isn't able to improve its financial state. Norwegian Cruise Line is trying to bolster its chances of success by offering new senior notes and printing new stock. The problem here is that the negative headlines may be making things worse. Given the situation the country's third-largest cruise line operator finds itself in, with passengers on canceled sailings having to choose between refunds and future cruise credit, this is just the kind of warning that can become a self-fulfilling prophecy.

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Rough waters

Weeks of canceled sailings have now become months for Norwegian Cruise Line and larger peers Carnival (NYSE:CCL) (NYSE:CUK) and Royal Caribbean International (NYSE:RCL). Customers are being given the choice to either get a refund or convert what they have already paid into credit on future sailings. The cruise lines have tried to sweeten their cash flow situations by warning that it could take months to process refunds. They have also made future credit the default option, tacking on a bonus in the process. 

Norwegian Cruise Line is offering customers on nixed sailings 125% of what they already paid in credit that can be used through the end of 2022. It's a smart strategy, but now that folks know the cruise line may not have enough liquidity to last longer than a few more months, it will be hard to convince them to take the credit. 

Back in March -- when there was still hope that the sailing disruption would last weeks instead of months -- only 45% of Carnival's passengers were going for the sweetened cruise credit. More than half of the displaced customers calling in were opting to get their money back. What do you think will happen for Norwegian Cruise Line now? More people will choose to get cashed out before a potential bankruptcy filing, and that will only speed up the liquidity crisis. 

It's not just about the old money. Norwegian Cruise Line is also pointing out in its latest prospectus that there's been a decline in advanced bookings since the suspension of cruise voyages. How likely are you to plunk down money on a 2021 or 2022 NCL sailing right now? 

A shakeout seems inevitable. Carnival and Royal Caribbean saw their shares lose less than half as much as Norwegian stock on Tuesday, down 9% and 10%, respectively. One can argue that they would be near-term beneficiaries if one of their competitors buckled. Fewer ships in the ocean would make it easier to cope with the shrinkage in near-term demand for sea voyages. Unfortunately, customer psychology doesn't work that way. If a cruise buff loses money on a trip, that person isn't going to chance getting burned again. A cash crunch on the eve of a seemingly inevitable recession is never going to be a good look for any industry.

Carnival and Royal Caribbean can't afford further damage to the industry's reputation as well as the trust of a good chunk of fans of the cruising lifestyle. That might be good news for battered Norwegian Cruise Line's investors. Carnival or Royal Caribbean are more likely to acquire a sea-battered rival than to let it sink to Davy Jones' locker, but Norwegian Cruise Line's stock will probably have to go down even more before the others consider an all-stock rescue.   

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.