I rode twice this evening. I am 100% certain that the sub remains in water the entire time. There are clear barriers that I can tell are there and a couple of times I was able to specifically see it (on the starboard side, right as you enter the whale's mouth was one of them).
Also, I frequently checked and was able to see the surface of the water above me.
I am pretty certain the subs remain in water the entire time and that the projections are behind a clear screen (or on a clear screen).